lecture6 - demand

lecture6 - demand - Topic 4: Consumer Choice (2) From...

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opic 4: Consumer Choice (2) Topic 4: Consumer Choice (2) From choice to demand USC Marshall
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From choice to demand • Having analyzed how consumers choose their consumption bundles, we can now use this framework to – Derive individual demand functions (and curves) from consumer preferences – Analyze the welfare consequences of price hanges and other market interventions (next changes and other market interventions (next lecture) USC Marshall
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From choice to demand • How can we derive the consumer’s demand function? – Recall that any interior solution is characterized by U MU x x , y MU y x , y P x P y – A demand function simply solves these two P x x P y y I equations for all P x , P y and I USC Marshall
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From choice to demand Q Y I/P Y RS MU x P x MRS x,y = = MU y P y ____ ___ A USC Marshall Q X I/P X
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From choice to demand Example: Suppose that a consumer’s utility function is given by so that the marginal utilities are given by U x , y x 1/3 y 2/3 MU x 1 3 y x and y 2 3 x y - Suppose P x =4, P y =2 and I=20. What (x,y) would the consumer choose? - Solve for the demand function of product x for this particular consumer. USC Marshall
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From choice to demand • Some particular relationships: The price-consumption curve and the demand curve • Tracing out how Q x varies in the consumption bundle chosen by the consumer when P x changes, holding other things constant, we can erive the individual demand curve derive the individual demand curve USC Marshall
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From choice to demand • Some particular relationships: The price-consumption curve and the demand curve • Tracing out how Q x varies in the consumption bundle chosen by the consumer when P x changes, holding other things constant, we can erive the individual demand curve derive the individual demand curve The income-consumption curve and the Engel curve • As with price changes, we can trace the impact of changes in income on the choice of USC Marshall consumption
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From choice to demand The price-consumption curve and the demand curve Q Y P P X ' I/P Y P X Q X I/P' X Q' X Q X Q' X USC Marshall
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From choice to demand The price-consumption curve and the demand curve Q Y P P X ' I/P Y P X P'' X Q X I/P'' X Q'' X Q X Q' X Q'' X USC Marshall
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From choice to demand The price-consumption curve and the demand curve Q Y P P X ' I/P Y P X P'' X P''' X Q X I/P''' X Q''' X Q X Q' X Q'' X Q''' X USC Marshall
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From choice to demand The price-consumption curve and the demand curve Q Y P P X ' I/P Y P X P'' X P''' X '''' Q X I/P'''' X Q'''' X Q X Q' X Q'' X Q''' X Q'''' X P X USC Marshall
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From choice to demand The price-consumption curve and the demand curve Q Y P P X ' Demand curve for good X I/P Y P X Price-Consumption curve for good X P'' X P''' X '''' Q X I/P'''' X Q'''' X Q X Q' X Q'' X Q''' X Q'''' X P X USC Marshall
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From choice to demand • What else can we learn from the price- consumption curve?
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This note was uploaded on 03/09/2009 for the course BUAD 351 taught by Professor Eastin during the Spring '07 term at USC.

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lecture6 - demand - Topic 4: Consumer Choice (2) From...

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