02demd_sg - Chapter Chapter 2 Demand 2 Demand CHAPTER...

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Chapter 2: Demand 1 Chapter 2 Demand CHAPTER SUMMARY A demand curve shows the quantity demanded as a function of price, other things equal. Generally, the demand curve slopes downward. Changes in price are represented by movements along the demand curve, while changes in other factors, such as income, the prices of related products, and advertising, are represented by shifts of the entire demand curve. The market demand curve is the horizontal summation of the individual demand curves of the various buyers. For a normal (inferior) product, demand is positively (negatively) related to changes in buyer’s income. Two products are complements (substitutes) if an increase in the price of one causes a fall (an increase) in the demand for the other. Buyer surplus is the difference between a buyer’s total benefit from some quantity of purchases and his or her actual expenditures. Changes in price affect buyer surplus through the price changes themselves as well as through changes in the quantity demanded. Package deals consist of a fixed quantity of the item for a fixed payment. Two-part tariffs consist of a fixed payment and a charge based on usage. These are two ways by which sellers can extract surplus from buyers. KEY CONCEPTS individual demand curve complement total benefit m a r g i n a l b e n e f
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Chapter 2: Demand © 2001, I.P.L. Png and C.W.J. Cheng 2 3. Describe the relationship between the slope of a demand curve and marginal benefit. 4. Distinguish between a change in quantity demanded versus a change in demand in words, as well as how each is reflected graphically. 5. Interpret and graphically reflect an increase and a decrease in demand and describe some of the most common variables that can cause an increase and a decrease in demand. In particular, distinguish complements from substitutes. 6. Construct a market demand curve from individual demand curves. 7. Describe the role of income distribution in affecting the demand for products. 8. Describe buyer surplus and express it graphically. 9. Describe the concepts of package deals and two-part tariffs, and show graphically how sellers can use these schemes to extract buyer surplus. 10. Relate the concept of consumer demand to business demand for inputs and describe some of the factors of business demand. NOTES
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This note was uploaded on 12/21/2011 for the course ECON 3014 taught by Professor Michaelshaw during the Spring '11 term at HKU.

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02demd_sg - Chapter Chapter 2 Demand 2 Demand CHAPTER...

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