Microeconomics 4
Individual and Market Demand
Individual and Market Demand
Kartei Details
| Karten | 18 |
|---|---|
| Sprache | English |
| Kategorie | VWL |
| Stufe | Universität |
| Erstellt / Aktualisiert | 17.11.2012 / 13.03.2015 |
| Weblink |
https://card2brain.ch/box/microeconomics_4
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price-consumption curve
Curve tracing the utility-maximizing combinations of two goods as the price of one changes.
Individual demand curve
Curve relating the quantity of a good that a single consumer will buy to its price.
An inferior Good
An increase in a person’s income can lead to less consumption of one of the two goods being purchased.
Engel curve
Curve relating the quantity of a good consumed to income.
Recall this
Two goods are substitutes if an increase in the price of one leads to an increase in the quantity demanded of the other.
Two goods are complements if an increase in the price of one good leads to a decrease in the quantity demanded of the other.
Two goods independent if a change in the price of one
good has no effect on the quantity demanded of the other.
effects of a fall in price
1. Consumers will tend to buy more of the good that has
become cheaper and less of those goods that are now
relatively more expensive.
2. Because one of the goods is now cheaper, consumers
enjoy an increase in real purchasing power.
substitution effect
Change in consumption of a good associated with a change in its price, with
the level of utility held constant.
income effect
Change in consumption of a good resulting from an increase in purchasing
power, with relative prices held constant.
income and substitution effect (inferior good)
In this case, food is an inferior good
because the income effect is negative.
However, because the substitution
effect exceeds the income effect, the
decrease in the price of food leads to
an increase in the quantity of food
demanded.
giffen good
Good whose demand curve slopes upward because the (negative) income effect is larger than the substitution effect.
market demand curve
Curve relating the quantity (x) of a good that all consumers in a market will buy to its price (y).
Inelastic demand
When demand is inelastic (i.e. Ep is less than one in absolute value), the quantity demanded is relatively unresponsive to changes in price. As a result, total expenditure on the product increases when the price increases.
Elastic Demand
When demand is elastic (Ep is greater than one in absolute value), total expenditure on the product decreases as the price goes up.
● isoelastic demand curve
Demand curve with a constant price elasticity.
consumer surplus
Difference between what a consumer is willing to pay for a good and the amount actually paid.
network externality
Situation in which each individual’s demand depends on the purchases of other individuals.
bandwagon effect
Positive network externality in which a consumer wishes to possess a
good in part because others do.
snob effect
Negative network externality in which a consumer wishes to own an
exclusive or unique good.
