北大光华本科微观作业micro-chapter4

pter 4 Chapter 4

p

Individual and Market Demand T opics to be Discussed y Individual Demand

y Income and Substitution Effects y Market Demand

y Consumer Surplus

y Empirical Estimation of Demand

Individual Demand

y Price Changes

◦Using the figures developed in the previous

chapter, the impact of a change in the price of food can be illustrated using indifference

curves

◦For each price change, we can determine how much of the good the individual would

purchase given their budget lines and

indifference curves Effect of a Price Change

Assume:

•I = $20

•P

C

= $2

Clothing

10

Each price leads to

C

$

•P F = $2, $1, $0.50

A Each price leads to

different amounts of

food purchased 5D

B

6

U1

U

3

4

U

2

Food (units

per month)

1220per month) 4

Effect of a Price Change

The Price-Consumption Curve traces out the utility Clothing

10

traces out the utility maximizing market basket for each price

of food A

of food

B

5D

6U 1

4

U 3

U 2

Food (units

per month)1220

per month)

4Effect of a Price Change

y

By changing prices and

showing what the Demand Schedule g

consumer will purchase, we can P Q create a demand schedule and demand f

h i di id l $2.004curve for the individual y

From the previous l

$1.0012example:$0.50

20

Effect of a Price Change

Price

Individual Demand relates

of Food

E

$200the quantity of a good that a consumer will buy to the price of that good.

$2.00

G

$100Demand Curve $1.00$Food (nits

H

$.50

Food (units per month)

4

12

20

Demand Curves Demand Curves –

–Important Properties The level of utility that can be attained

y

changes as we move along the curve

y At every point on the demand curve, the

consumer is maximizing utility by

g y y satisfying the condition that the MRS of food for clothing equals the ratio of the prices of food and clothing

Effect of a Price Change

Price of Food

E

$200When the price falls,

&MRS also fall

$2.00

2/21P f /P c & MRS also fall G

$100•E : P f /P c = 2/2 = 1 = MRS

•G: P f /P c = 1/2= .5 = MRS •H:P f /P c = .5/2 = .25 = MRS

$1.00$50Food (units

H

$.50

Demand Curve

Food (units per month)

4

12

20

Individual Demand

y

Income Changes

◦Using the figures developed in the previous chapter, the impact of a change in the income can be illustrated using indifference curves ◦Changing income, with prices fixed, causes consumers to change their market baskets

Effects of Income Changes

Cl thi Clothing (units per month)

Assume: P f = $1, P c = $2

I = $10, $20, $30

An increase in income,with the prices fixed with the prices fixed,causes consumers to alter

their choice of market basket.

D

75B U 2

U 3

Food (units 3

A

U 1

per month)

4

1016

Individual Demand

y

Income Changes

◦The income-consumption curve traces out the utility-maximizing combinations of food and clothing associated with every income level