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







Related Discussions:- Individual demand curve - effect of price change, Assignment Help, Ask Question on Individual demand curve - effect of price change, Get Answer, Expert's Help, Individual demand curve - effect of price change Discussions

Write discussion on Individual demand curve - effect of price change
Your posts are moderated
Related Questions
all information about demand analysis

Consider a decision faced by a cattle breeder. The breeder must decide how many cattle he should sell in the market each year and how many he should retain for breeding purposes.

Suppose that a firm’s production function is given by Q=30L-3L2, where L is labor input and Q is the output. a) Derive and draw the firm’s demand for labor while the firm’s produ

Suppose the demand curve for a consumer for coffee is: Q = 6 – 2P, where Q represents the number of cups per day and P is the price of coffee per cup.  Question: Sppose the co

how does the prices system affect a country

If a 10% increase in the price of computers leads to a 20% reduction in the quantity demanded, what is the coefficient of demand elasticity? 2. A local government wants to increase

Inflation Types Inflation is generally classified on the basis of its rate and causes, while rate-based classification of inflation refers to the severity of inflation or how h

Perfect competition has the following characteristics: 1. Large number of firms - There are a large number of firms in the market. Due to this each firm produces a very small fr

Need help with Free responds

Discretionary Fiscal Policy: Some government taxing and spending programs can be adjusted by government in response to changing economic circumstances. These discretionary measures