1.  Individual demand

a.  Price changes

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• Utility changes along the demand curve

• Consumer is maximizing utility at every point on the demand curve

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b.  Income changes

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• Normal good - more of the good is consumed when income increases

• Inferior good - less of the good is consumed when income increases

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• Engel curve - shows relationship between income and quantity

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2.  Income and substitution effects

• Income effect - change in consumption resulting from a change in a consumer's real purchasing power due to a change in the price of a good

• Substitution effect - change in consumption resulting from a change in relative prices

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a.  Normal good

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b.  Inferior good

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c.  Giffen good

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• Would result in an upward sloping demand curve

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3.  Market demand

• Market demand is the sum of the individual demands

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a.  Elasticity and the demand curve

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b.  Elasticity and expenditures (revenue)

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4.  Consumer surplus

• Difference between what a consumer is willing to pay for a good and the amount actually paid

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5.  Network externalities

• Each individual's demand depends on the purchases of other individuals

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a.  Positive externalities

• Quantity demanded increases when purchases by other consumers increase

• Ex. -

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• Bandwagon effect - positive network externality where a consumer wants to possess a good because others do

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b.  Negative externalities

• Quantity demanded decreases when purchases by other consumers increase

• Ex. -

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• Snob effect - negative externality where a consumer wants to own an exclusive or unique good

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