Ch05_spr09_pam2000 - PAM 2000 Intermediate Microeconomics...

Info iconThis preview shows pages 1–10. Sign up to view the full content.

View Full Document Right Arrow Icon
PAM 2000 Intermediate Microeconomics A. Sinan Ünür Optimal Choice and Demand Optimal Choice and Demand Chapter 5
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Chapter 5 PAM 2000 – A. Sinan Ünür Individual demand curve An individual’s demand curve for a good shows how much of a good she wants to purchase at various prices, keeping constant her income, the prices of other goods, and her preferences . To answer this question, we need the consumer’s price-consumption curve ( PCC ) .
Background image of page 2
Price-consumption curve Holding income and the price of Y constant, optimal bundles are traced on an indifference map as the price of X varies.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Slope of the PCC and Share of Budget Spent on X Coffee Bagels Suppose the consumer’s PCC is a straight line. 1. What happens to the quantity of coffee consumed as the price of  coffee decreases? 2. Does the amount of money spent on coffee increase, decrease, or  stay the same as the price of coffee falls? PCC
Background image of page 4
Slope of the PCC and Share of Budget Spent on X Coffee Bagels Suppose the consumer’s PCC is upward sloping. 1. What happens to the quantity of coffee consumed as the price of  coffee decreases? 2. Does the amount of money spent on coffee increase, decrease, or  stay the same as the price of coffee falls? PCC
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Slope of the PCC and Share of Budget Spent on X Coffee Bagels Suppose the consumer’s PCC is downward sloping. 1. What happens to the quantity of coffee consumed as the price of  coffee decreases? 2. Does the amount of money spent on coffee increase, decrease, or  stay the same as the price of coffee falls? PCC
Background image of page 6
Chapter 5 PAM 2000 – A. Sinan Ünür Constructing an individual demand curve • For each level of the price of X, P X we find the consumer’s chosen quantity of X (from the PCC), • Then, we plot those points with P X on the vertical axis, and the quantity of X on the horizontal axis.
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Constructing an individual demand curve
Background image of page 8
Chapter 5 PAM 2000 – A. Sinan Ünür Example: Derive individual demand Suppose my preferences over coffee and bagels are given by: U(C, B) = min { C/16, B } where C is coffee in ounces per day and B is bagels per day. That is, coffee and bagels are perfect
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 10
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 31

Ch05_spr09_pam2000 - PAM 2000 Intermediate Microeconomics...

This preview shows document pages 1 - 10. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online