Intermediate+Microeconomics英文讲义Chapter6

Chapter 6

Demand

A.Demand functions — relate prices and income to best choices

The consumer’s demand functions give the optimal amounts of each of the goods as

a function of the prices and income faced by the consumer. Or it is a function that

relates the prices and income to the optimal quantity demanded. They are

()m

,

=

p

x,

x

p

1

2

1

1

()m

,

x,

=

p

x

p

2

1

2

2

B.How do choices change as economic environment changes?

Definition: Studying how a choice responds to changes in the economic environment is known as comparative statics.

―Comparative‖ means that we want to compare two situations: before and after the change in the economic environment.

―Statics‖ means we are not concerned about any adjustment process from one situation to another situation; rather we will only examine the equilibrium choices.

1.changes in income

We hold the prices fixed and examine the change in demand due to the income change.

a)this is a parallel shift out of the budget line

b) A normal good is one for which the demand increases when income increases.

06.01

c)An inferior good is one for which the demand decreases when income

increases. Any kind of low-quality good.

06.02

d)We can connect together the demanded bundles that we get as we shift the

budget line outward to construct the income offer curve. As income changes,

the optimal choice moves along the income expansion path.

e)The relationship between the optimal choice and income, with prices fixed, is

called the Engel curve.

06.03

f) Some examples

Perfect substitutes:

If 21p p <, the consumer is specializing in the consumption of good 1. Then if his income increases he will increase his consumption of good 1.

06.04

Perfect complements:

Since the consumer will always consume the same amount of each good, so the income offer curve is the diagonal line through the origin.

m x p x p =+21 and ()x p p m 21+=

06.05

for good 1 is 11/p am x =,

06.06

Homothetic Preferences:

Luxury good : If the demand for a good goes up by a greater proportion than income, we say that it is a luxury good.

Necessary good : if it goes up by a lesser proportion than income we say that it is a necessary good.

The dividing line between luxury good and necessary good is a case where the demand for a good goes up by the same proportion as income.

Suppose the consumer prefers ()21,x x to ()21,y y , the consumer also prefers ()21,tx tx to ()21,ty ty , the preferences with this property are homothetic preferences . Then the income offer curves are all straight lines through the origin. See Figure 6.7.

06.07

Quasilinear Preferences:

All indifference curves are ―shifted‖ versions of one indifference curve.

()()2121,x x v x x u +=

Suppose good 1 is salt and good 2 is money to spend on other goods. Initially You may spend your income only on salt, but when your income gets large enough, you stop buying additional salt — all of extra income is spent on other goods.

06.08

2. Changes in price

Hold the price of good 2 and money fixed, decrease the price of good 1 to see what can happen to the quantity demanded of good 1. a) this is a tilt or pivot of the budget line

b) An ordinary good is one for which the demand decreases when its price

increases, or the demand increases when its price decreases.

06.09

c) A Giffen good is one for which the demand increases when its price increases,

the demand decreases when its price decreases. It is named after the 19th