Basics of theory of demand, Microeconomics

Basics of Theory of demand:

The most famous approach in the history of consumer behaviour, after indifference curve approach, is the revealed preference approach. In the revealed preference approach there is no concept of utility function and that is why the approach has no concept of indifference curve. The consumer has only preferences i.e., between any two commodities A and B, she can either prefer A over B or prefer B over A or A and B give same level of utility to the consumer, i.e. consumer is indifference between A and B. The slope of the demand curve of a good can take any algebrical sign. There are five main axioms of revealed preference theory.  In revealed preference approach own price effect can be decomposed into own substitution effect and income effect for a price change. Substitution effect is negative. The demand function is homogeneous of degree zero with respect to prices and money income, i.e., if prices of all goods and money income change proportionately then demand for each commodity remains unchanged, some times this can be put forward as 'Consumer is free from money illusion'.  In uncertain world consumer's objective is to maximise expected utility unlike the certain world where her objective is to maximise her utility.

The consumer preferences can be completely described by five axioms.  There is a duality between utility maximisation and expenditure minimisation, i.e., they both gives the same results. There are three duality theorems. Roy's identity relates optimal commodity demands to the derivatives of the indirect utility function and the optimal value of the Lagrange multiplier.  

Posted Date: 10/26/2012 4:31:01 AM | Location : United States







Related Discussions:- Basics of theory of demand, Assignment Help, Ask Question on Basics of theory of demand, Get Answer, Expert's Help, Basics of theory of demand Discussions

Write discussion on Basics of theory of demand
Your posts are moderated
Related Questions
Q. Explain about Employment Rate? Employment Rate: This measures share of working age adults who are in fact employed in a paying position. Employment rate can be a better in

During the 1990s, technological advance reduced the cost of computer chips. Explain, with the use supply and demand diagrams, how the following markets are affected in terms of pr

Define Amagat law of partial volume, Amagat law of partial volume The total volume of a mixture of non reacting gases at constant temperature & pressure is equal to sum of indiv

characteristic of duopoly

what do you meant by rent?

schedules for cost

Increasing returns to scale and decreasing returns to scale: Increasing returns to scale occur when increases in all inputs by a certain percentage cause a relatively higher p

use a graphical illustration to describe briefly what the influence of each of the following be on the market supply of labour,(a) an increase in immigrants, (b) a reduction in wag

Malthus and the Food Crisis - Malthus predicted starvation as diminishing returns limited agricultural output and the population continued to grow. - Why did Malthus' predic

what is money? functions