Individual demand curve - effect of price change, Microeconomics

Individual Demand

* The Individual Demand Curve 

- Two significant Properties of Demand Curves

- 1) The level of utility which can be attained changes while moving along the curve.

- 2) At every instant on demand curve, the consumer is maximizing utility by fulfilling the condition that the MRS of food for clothing equals the ratio of prices of food and clothing.

Effect of Price Change
1120_individual demand.png

Individual Demand

* Income Changes

- Using figures developed earlier, the impact of a change in income can be illustrated by using indifference curves.
1178_individual demand1.png
Effects of Income Changes

634_individual demand2.png
- The income-consumption curve traces out utility maximizing combinations of food and clothing linked with every income level.

- An increase in income shifts budget line to right, increasing consumption along income-consumption curve.

- At the same time, increase in income shifts demand curve to right.

* Normal Good vs. Inferior Good

-  Income Changes

  • When income and consumption curve is having positive slope:

-The quantity demanded increases with the increase income.

-The income elasticity of demand is positive in nature.

-The product is a normal good.

  • When income consumption curve is having negative slope:

    -The quantity demanded decreases with the increase in income.

-The income elasticity of demand is negative in nature. 

-This good is an inferior good.

An Inferior Good

2160_individual demand3.png

Posted Date: 10/10/2012 7:10:40 AM | Location : United States






Your posts are moderated
Related Questions
Q. What do you meant by Private Equity? Private Equity: A form of business in which company's entire equity base is owned by one or a small group of individual investors. Under

You are the CFO for Carnival Corportaion and your boss, the CEO informs you that he wants to add three new cruise ships to the company''s inventory. Each ship will cost $500 millio

What are the steps of the basic analytical framework in Modern Economics? Framework is very significant to master this fundamental analytical framework, particularly, these fiv

Themes of Microeconomics ?? As per Mick Jagger & the Rolling Stones, “You can’t always get what you want”. Why Not?          ?? Restricted Resources          ?? Infini

NEED OF REFORMS: Presently Government offices generate  a lot of paper work in the form of reports/returns, extended file movement in many cases for clarification of some mino

1. Consider the consumption decisions of R.B. Turbo, a new student at Teachers College, Columbia University. Ms. Turbo has only available $1,000 in monthly income to spend on food

Cost Sharing in Higher Education - Student Loans The method is popular as it directly targets only those who are the recipients of the benefits of higher education.The method

Consider two individuals  M and F who must split 20 units of good X and 10 units of good Y. Suppose we can represent M's preference with the utility function Um =X ^2 mYm and Fs

Manners of reaching to someone's place with a present of anything like flowers, chocolates, etc. In U.S., it's not feel good to give flowers to women by men. If a man giving some g

1. By using the Production possibility Curve (PPC), analyze the microeconomic theories such as scarcity, choices and opportunity costs. Provide relevant graph with numerical exampl