chapter six demand. income changes u a plot of quantity demanded against income is called an engel...

Post on 20-Dec-2015

212 views

Category:

Documents

Embed Size (px)

TRANSCRIPT

• Slide 1
• Chapter Six Demand
• Slide 2
• Income Changes u A plot of quantity demanded against income is called an Engel curve.
• Slide 3
• Income Changes Fixed p 1 and p 2. y < y < y x 1 x 1 x1x1 x 2 x 2 x2x2 Income offer curve x1*x1* y x 1 x 1 x1x1 y y y Engel curve; good 1
• Slide 4
• Income Changes and Cobb- Douglas Preferences u An example of computing the equations of Engel curves; the Cobb- Douglas case. u The ordinary demand equations are
• Slide 5
• Income Changes and Cobb- Douglas Preferences Rearranged to isolate y, these are: Engel curve for good 1 Engel curve for good 2
• Slide 6
• Income Changes and Cobb- Douglas Preferences y y x1*x1* x2*x2* Engel curve for good 1 Engel curve for good 2
• Slide 7
• Income Changes and Perfectly- Complementary Preferences u Another example of computing the equations of Engel curves; the perfectly-complementary case. u The ordinary demand equations are
• Slide 8
• Income Changes and Perfectly- Complementary Preferences Rearranged to isolate y, these are: Engel curve for good 1 Engel curve for good 2
• Slide 9
• Income Changes x1x1 x2x2 y < y < y x 1 x1x1 x 2 x 2 x2x2 x 1 x1*x1* y y y y Engel curve; good 1 x 1 x 1 x1x1 Fixed p 1 and p 2.
• Slide 10
• Quasi-linear Indifference Curves x2x2 x1x1 Each curve is a vertically shifted copy of the others. Each curve intersects both axes.
• Slide 11
• Income Changes; Quasilinear Utility x2x2 x1x1 x1x1 ~ x1*x1* y x1x1 ~ Engel curve for good 1
• Slide 12
• Income Changes; Quasilinear Utility x2x2 x1x1 x1x1 ~ x2*x2* y Engel curve for good 2
• Slide 13
• Income Effects u A good for which quantity demanded rises as income increases is called normal. u Therefore when a good is normal its Engel curve must be positively sloped.
• Slide 14
• Income Effects u A good for which quantity demanded falls as income increases is called inferior. u Therefore when a good is income inferior its Engel curve must be negatively sloped.
• Slide 15
• Income Changes; Goods 1 & 2 Normal x 1 x 1 x1x1 x 2 x 2 x2x2 Income offer curve x1*x1* x2*x2* y y x 1 x 1 x1x1 x 2 x 2 x2x2 y y y y y y Engel curve; good 2 Engel curve; good 1
• Slide 16
• Income Changes; Good 2 Is Normal, Good 1 Becomes Income Inferior x2x2 x1x1 Income offer curve
• Slide 17
• Income Changes; Good 2 Is Normal, Good 1 Becomes Income Inferior x2x2 x1x1 x1*x1* x2*x2* m m Engel curve for good 2 Engel curve for good 1
• Slide 18
• Ordinary Goods u A good is called ordinary if the quantity demanded always increases as its own-price decreases.
• Slide 19
• Ordinary Goods Fixed p 2 and y. x1x1 x2x2 p 1 price offer curve x1*x1* Downward-sloping demand curve Good 1 is ordinary p1p1
• Slide 20
• x 1 *(p 1 ) x 1 *(p 1 ) x 1 *(p 1 ) p1p1 x 1 *(p 1 ) x 1 *(p 1 ) x 1 *(p 1 ) p1p1 p 1 p 1 x1*x1* Own-Price Changes Ordinary demand curve for commodity 1 Fixed p 2 and y.
• Slide 21
• x 1 *(p 1 ) x 1 *(p 1 ) x 1 *(p 1 ) p1p1 x 1 *(p 1 ) x 1 *(p 1 ) x 1 *(p 1 ) p1p1 p 1 p 1 x1*x1* Own-Price Changes Ordinary demand curve for commodity 1 p 1 price offer curve Fixed p 2 and y.
• Slide 22
• Own-Price Changes u The curve containing all the utility- maximizing bundles traced out as p 1 changes, with p 2 and y constant, is the p 1 - price offer curve. u The plot of the x 1 -coordinate of the p 1 - price offer curve against p 1 is the ordinary demand curve for commodity 1.
• Slide 23
• Own-Price Changes u What does a p 1 price-offer curve look like for a perfect-complements utility function? Then the ordinary demand functions for commodities 1 and 2 are
• Slide 24
• Own-Price Changes With p 2 and y fixed, higher p 1 causes smaller x 1 * and x 2 *.
• Slide 25
• p1p1 x1*x1* Ordinary demand curve for commodity 1 is Fixed p 2 and y. Own-Price Changes x1x1 x2x2 p1p1 p 1 p 1 y/p 2
• Slide 26
• Own-Price Changes u What does a p 1 price-offer curve look like for a perfect-substitutes utility function? Then the ordinary demand functions for commodities 1 and 2 are
• Slide 27
• Own-Price Changes and
• Slide 28
• Fixed p 2 and y. Own-Price Changes x2x2 x1x1 p1p1 x1*x1* Fixed p 2 and y. p1p1 p 2 = p 1 p 1 p 1 price offer curve Ordinary demand curve for commodity 1
• Slide 29
• Giffen Goods u If, for some values of its own-price, the quantity demanded of a good rises as its own-price increases then the good is called Giffen.
• Slide 30
• Giffen Goods Fixed p 2 and y. x1x1 x2x2 p 1 price offer curve x1*x1* Demand curve has a positively sloped part Good 1 is Giffen p1p1

Recommended