Chapter 4Individual andMarket Demand(微观经济学-华侨大学,JeffCaldw)

normal goods.
10
Food (units
0
4
8
12
16 per month)
Chapter 4
Slide 21
Engel Curves
Income ($ per
month) 30
Engel curves slope
20
backward bending for inferior goods.
U3
B U2
…but hamburger becomes an inferior good when the income consumption curve
bends backward between B and C.
U1
10
20
Hamburger 30 (units per month)
Slide 19
Price of
food
$1.00
An increase in income, from $10 to $20 to $30, with the prices fixed, shifts the consumer’s demand curve to the right.
E
G
H
Chapter 4
D3
D2 D1
10
Inferior Normal
Food (units
0
4
8
12
16 per month)
Chapter 4
Slide 22
Consumer Expenditures in the United States
Income Group (1997 $)
Expenditure Less than 1,000- 20,000- 30,000- 40,000- 50,000- 70,000-
When the income-consumption curve has a positive slope: The quantity demanded increases with income. The income elasticity of demand is positive. The good is a normal good.
Chapter 4
Slide 17
Individual Demand
Normal Good vs. Inferior Good
Income Changes
When the income-consumption curve has a negative slope: The quantity demanded decreases with income. The income elasticity of demand is negative. The good is an inferior good.
2656 3385
Clothing
859 978
1274 2253 2371 1918 4109 1363
1514 2054 3243 4454 2536 2137 1820 2052 4888 5429 1772 1778
2654 4300 5793 9898 1540 1266 2214 2642 6220 8279 2614 3442
$1.00 $.50
G Demand Curve H
4 12 20
Chapter 4
Food (units per month)
Slide 8
Individual Demand
The Individual Demand Curve
Two Important Properties of Demand Curves
4 10 16
Food (units per month)
Slide 14
Individual Demand
Income Changes
The income-consumption curve traces out the utility-maximizing combinations of food and clothing associated with every income level.
If the good is an inferior good, the Engel curve is downward sloping.
Chapter 4
Slide 20
Engel Curves
Income ($ per
month) 30
20
Engel curves slope upward for
Chapter 4
Slide 15
Individual Demand
Income Changes
An increase in income shifts the budget line to the right, increasing consumption along the income-consumption curve.
2) At every point on the demand curve, the consumer is maximizing utility by satisfying the condition that the MRS of food for clothing equals the ratio of the prices of food and clothing.
are tangent to each budget line.
Food (units per month)
Slide 6
Effect of a Price Change
Clothing (units per
month)
6A
5
U1
B
4
The price-consumption curve traces out the utility maximizing market basket for the
G
•H:Pf/Pc = .5/2 = .25 = MRS
Demand Curve
H
4 12 20
Chapter 4
Food (units per month)
Slide 11
Individual Demand
Income Changes
Using the figures developed in the previous chapter, the impact of a change in the income can be illustrated using indifference curves.
various prices for food.
Price-Consumption Curve
D
U3
U2
4 12 20
Chapter 4
Food (units per month)
Slide 7
Effect of a Price Change
Price of Food
E $2.00
Individual Demand relates the quantity of a good that a consumer will buy to the price of that good.
Individual Demand
Substitutes and Complements
1) Two goods are considered substitutes if an increase (decrease) in the price of one leads to an increase (decrease) in the quantity demanded of the other.
Simultaneously, the increase in income shifts the demand curve to the right.
Chapter 4
Slide 16
Individual Demand
Normal Good vs. Inferior Good
Income Changes
Chapter 4Individual andMarket Demand(微观经济 学-华侨大学,JeffCaldw）
Chapter 4
Slide 1
Chapter 4 Individual and
Market Demand
Topics to be Discussed
Individual Demand Income and Substitution Eumer Surplus
Chapter 4
Slide 3
Topics to be Discussed
Network Externalities Empirical Estimation of Demand
Chapter 4
Slide 4
Individual Demand
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.
Chapter 4
Slide 12
Effects of Income Changes
Clothing (units per
month)
Assume: Pf = $1 Pc = $2 I = $10, $20, $30