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NUMBER OF BUYERS: One of the five demand determinants assumed constant when a demand curve is constructed, and that shift the demand curve when they change. The other four are income, preferences, other prices, and buyers' expectations. This determinant is based on the simple observation that if more people are willing and able to buy a good, then demand is greater.

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Lesson 10: Utility and Demand | Unit 5: Beyond Demand Page: 20 of 21

Topic: Market Supply <=PAGE BACK | PAGE NEXT=>

  • For me to buy a good, someone must be selling.

  • Here's a quick comparison of the demand and supply decisions.

    • Consumers generate utility by consuming goods. Producers generate profit by producing goods.
    • Consumers seek to maximize utility. Producers seek to maximize profit.
    • Consumers make decisions based on marginal utility. Producers make decisions based on marginal product.
    • Consumption decisions are guided by the law of diminishing marginal utility. Production decisions are guided by the law of diminishing marginal returns.
    • Consumers buy more at lower prices because marginal utility is less. Producers sell more at higher prices because marginal product is less.
    • Consumers make decisions that marginal benefits with marginal costs. Producers make decisions that balance marginal benefits with marginal costs.

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MARGINAL PROPENSITY TO CONSUME

The proportion of each additional dollar of household income that is used for consumption expenditures. The marginal propensity to consume (abbreviated MPC) is another term for the slope of the consumption line and is calculated as the change in consumption divided by the change in income. The MPC plays a central role in Keynesian economics. It quantifies the consumption-income relation and the fundamental psychological law. It is also a foundation for the slope of the aggregate expenditures line and is critical to the multiplier process. A related consumption measure is the average propensity to consume.

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Today, you are likely to spend a great deal of time at an auction wanting to buy either a set of luggage without wheels or a how-to book on wine tasting. Be on the lookout for slow moving vehicles with darkened windows.
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