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
hi, how much does it cost for you guys to write a 5-6 pages on a article on supply and demand? However, on the 5-6 pages it wont all be writings..i need a few graphs. i would need

explain stages and various coordination mechanism involved in policy process

Consider a hypothetical ABC economy in which the narrowly-defined measure of the  money supply (M1), as defined in the Canadian sense, in existence is 1250$ million. Assuming the e

International Monetary Fund: International Monetary Fund (IMF) is one of the two institutions that were established as a result of the Brettonwoods Conference in 1944, the oth

1. "Price discrimination allows a monopoly to increase its economic profit by capturing part of the consumer surplus and turning it into economic profit. Such a situation however l

Where minimum efficient scale is very huge for capital intensive operations, it may be more cost effective to allow one company to spread its fixed costs over a very huge number of

Which firm has the greatest minimum efficient scale?

How can we calculate the Inflation rate Inflation:   The rise in general prices and the decrease in value of money. Inflation is a sustained increase in the general price level

How might a “perfect” macro equilibrium be affected by (a) a stock market crash; (b) the death of a president; (c) a recession in Canada; (d) a spike in oil prices?

In fall 2006, Pace University raised its annual tuition from $24,750 to $29,750. Freshman enrollment declined from 1500 in fall 2005 to 1110 in 2006. assuming the demand curve did