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the Individual Demand Schedule

the Individual Demand Schedule

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Published by orionally

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Published by: orionally on Sep 13, 2009
Copyright:Attribution Non-commercial

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11/12/2012

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The Individual Demand CurveThe Individual Demand CurvePrice – Consumption CurvePrice – Consumption Curve
: PPCtraces the utility-maximizingcombinations of two goods, sayclothing and food associated withevery possible price of good (Fig.4.1a)As price of food falls, theconsumption of clothing mayincrease or decrease The consumption of both food and
 
An Individual Demand Curve relates thequantity of a good that a single consumer willbuy to the price of that good. In Fig. 4.1(b), theIDC relates the quantity of food that theconsumer will buy to the price of food. ThisCurve has two important opportunities:
the level of utility that can be attained changesas we move along the curve
at every point on the demand curve, theconsumer is maximizing utility by satisfying thecondition that the MRS of food for clothingequals the ratio of prices of food and clothing
Income – Consumption Curve traces out theutility-maximizing combinations of food andclothing associated with every income level. The curve slopes upwards because theconsumption of both food and clothingincreases as income increases (Fig. 4.2 a)
 
Normal goods are those goods inwhich the demand for themincreases as income increases(income elasticity of demand ispositive)
Inferior goods are those goods inwhich the demand for them is less asincome increases (income elasticityof demand is negative)

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