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
Discuss about the evaluation step in analytical frameworks. Evaluations: The fifth step into studying an economic step is to estimate outcomes resulting through the under

Volume of Trade: It relates to the size of international transactions. Since a large number of commodities enter in international transactions and their aggregate can be found

Strictly give the diff. btw the theory of reciprocal demand & theory of comparative advantage

RATIONAL EXPECTATIONS AND ECONOMIC THEORY  : Much of undergraduate macroeconomic theory is discussed on the assumption that, in the short run, the expectations of economic age

Trade union can also pay a useful role in improving the wages of the workers without causing adverse effects on employment. This case which is intensely associated with the idea of

Shor tage A condition under that the quantity demanded for a good or service exceeds the available supply for that good or service. Shortages usually cause a rise in price

What does Keynesian consumption function say about tax cuts

demand elasticity in urdu

1.  The marginal benefit (demand) curve for pollution for an industry is P=100-4*Q, where Q is emissions in tons.  The current emissions tax (price) for pollution is $40/ton.  Regu