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
Axioms: It is possible to construct a utility index which can be used to predict choice in uncertain situations if the consumer conforms to the following five axioms:  • A

Around 2007, the world copper price was $2.00 per pound and 12 million metric tons per year was the quantity transacted. A) Assume copper’s demand elasticity is -.5 and supply elas

Marginal Product (MP) of a Factor: From the above mentioned production function, immediately we can study the effect on total output when there is a variation in labour utlili

can you help me answer an economics question

Sita expects her future earnings to be worth Rs 100. If she falls ill, her expected future earning will be Rs 25, There is a belief that she may fall ill 2 with probability of -3

is country beter off with ban on imports?

Explain how Monetarist economics views the role of markets and government intervention in fighting business cycles. Monetarist economics believes that the government should fol

1.what is price mechanism? 2.how does price mechanism benefit an echonomy. 3.what are the characteristics of a centrally planned economy?

why raise MC cost after minimum level ?

illustrate graphically the influence of an increase in immigrants on the market supply of labour