Chapter 14

Define "Market", "Supply", and "Demand", and explain their connections.

What is meant by "demand" and what is a "demand curve"?

Define the term "demand" in economics. Give an example to illustrate demand.

In constructing demand and marginal revenue curves, it is often convenient to start off with a downward-sloping straight line to represent demand. We then draw a straight line for marginal revenue (MR) such as drawn in figure 1 . a) Show that if demand is linear, marginal revenue is linear b) Show that if demand is linear with slope-b and $\mathrm{y}$ -intercept a, marginal revenue has slope $-2\mathrm{b}$ and $\mathrm{y}$ -intercept a.

Mrs. White is buying trees to landscape her family's new residence. The accompanying demand schedule characterizes her behavior as a buyer. The price is quoted at $\mathrm{\$}6.$ Accordingly, she buys five trees. Then, after she buys the five trees, the seller offers her one more for $\mathrm{\$}5$. a) Does she take it? b) Suppose the seller offers her an opportunity to buy more trees (after she has already agreed to purchase five at $\mathrm{\$}6$ each and one more for $\mathrm{\$}5$ ) at the price of $\mathrm{\$}3$. How many more does she buy? c) If the price had been $\mathrm{\$}3$ initially, would she have bought more than eight trees? d) Suppose she has to pay a membership fee of $\mathrm{\$}5$ to buy at this nursery, after which she could buy all the trees she wanted for her garden at $\mathrm{\$}3$ each. How many would she buy? (Assume price at other nurseries is $\mathrm{\$}4$, with no membership fee.) e) If she could buy trees at $\mathrm{\$}3$ each from some other store without a membership fee, would she still buy only eight trees, saving the $\mathrm{\$}5$ for use on all her other consumption activities? f) Explain why, according to the demand schedule, her purchase of eight trees at $\mathrm{\$}3$ each, at a total cost of $\mathrm{\$}24$ is a consistent alternative to her purchase of eight trees under the former sequential offers, in which she pays a total of $\mathrm{\$}41$ (five at $\mathrm{\$}6$, one at $\mathrm{\$}5$, and two at $\mathrm{\$}3)$.

What are some of the major determinants of the demand for a good?

What is the Law of Demand?

Graphically, why does the demand curve, which represents all price and quantity demanded possibilities, slope downward and to the right?

What would be implied about the relationship between prices and quantity demanded, if a demand curve sloped upward and to the right? Might this situation normally be expected to occur?

What is the difference between an increase in demand and an increase in the quantity demanded?