ec4004 lecture 2 individual demand
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EC4004 Lecture 3Individual Demand
Last Time
Utility Functions
Indifference Curves
Budget Constraints
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Week
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086 399 83 06
Today
Demand Functions
Income & Substitution Effects
Consumer Surplus
1.
Demand Functions
Demand Functions
elements determine quantity demanded
3
Prices of X and Y
1
Income (I)
2
Person’s preferences for X and Y
3
What happens when Income Increases?
Mathematica
086 399 83 06
2.
Substitution
Part of the change in the quantity demanded for other goods is caused by the substitution of one good for another: called substitution effect
Income Effects
Part of the change in the quantity demanded is caused by the change
in real income: called income effect.
Mathematica
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3.
Quantity of Yper week
U1U2
Quantity of Xper week
Budget constraint for P’X
Budget constraint for P’’X
X’ X” X’”
(a) Individual’s indifference curve map
0
Price
Quantity of X per weekX’ X” (b) Demand curve0
P’X
P’’X
Constructing Individual Demand Curves
Quantity of Yper week
U1U2
U3
X
Quantity of Xper week
X’ X” X’”
(a) Individual’s indifference curve map
0
Price
P9
XP0
XP-
Quantity of X per weekX’ X” X’” (b) Demand curve0
Budget constraint for P’X
Budget constraint for P’’X
Budget constraint for P’’’X
Quantity of Yper week
U1U2
U3
X
Quantity of Xper week
X’ X” X’”
(a) Individual’s indifference curve map
0
Price
P9
XP0
XP- dX
Quantity of Xper week
X’ X” X’”(b) Demand curve
0
Budget constraint for P’X
Budget constraint for P’’X
Budget constraint for P’’’X
4.
Price (PT= €/shirt)
15
Quantity (shirts)
Consumer Surplus from T-Shirt Demand Price (€/shirt)
11
9
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Next Time• Try exercises 3.4, 3.5, 3.1
33
Summary
Demand Functions
Income & Substitution Effects
Consumer Surplus
EC4004 Lecture 3Individual Demand