Demand Curve - UNC-Wilmington Cameron School of Business...

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UNC-Wilmington ECN 321 Cameron School of Business Dr. Chris Dumas Dept. of Economics and Finance Deriving an Own-Price Demand Curve for a Linear Programming Model of Consumer Choice Recall from your Principles of Microeconomics course that an Own-Price Demand Curve is the relationship between the per unit price of a good/service/activity and the quantity of that same good/service/activity purchased by a consumer. In this course, we have been studying consumer choice problems in product markets using the method of linear programming. In linear programming problems of consumer choice that feature a budget (or income) constraint, we can derive the Own-Price Demand Curve of the consumer for each good/service/activity that appears in the budget constraint. To derive the Own-Price Demand Curve, we perform a Sensitivity Analysis on the results of the linear programming problem. Recall that a Sensitivity Analysis is an investigation of the response of a model variable to a change in the value of a model parameter. The per unit price of a good/service/activity appearing in the budget constraint is a model parameter, and the quantity of the good/service/activity chosen by the consumer is a model variable. The Own-Price Demand Curve is the relationship between per unit price and quantity chosen. Thus, we can find a consumer's Own-Price Demand Curve by performing a Sensitivity Analysis on the results of a linear programming model of consumer choice. Because the Own-Price Demand Curve is a result that is derived from a model, the Own- Price Demand Curve is a theorem (recall that a theorem is defined as any result that is derived from a model). Example Problem In this problem, our goal is to find the graph of a consumer's Own-Price Demand Curve for product X. Recall that an Own-Price Demand Curve for product X has the price of X, which we will denote P X , on the vertical axis and X itself on the horizontal axis. So, we are trying to find several (X, P X ) points that we can graph to get a picture of the Own-
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This note was uploaded on 10/22/2009 for the course ECN 321 taught by Professor Dumas during the Fall '08 term at University of North Carolina Wilmington.

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Demand Curve - UNC-Wilmington Cameron School of Business...

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