A case of beer … and wineHow does beer consumption vary with its price?How does it vary with income? How is beer consumption affected by availability & prices of substitutes (e.g., wine) and complements (e.g., ESPN)?How much will consumption change with an excise tax?
Deriving individual demand curve1)Start with consumer’s optimal basket given their income and given prices (MRSx,y= px/py)2)Vary price of one good, holding all other prices and income constant (Δpx > 0, Δpy = 0, ΔI = 0)3)Trace out the optimal baskets as the one price varies: the “price-consumption curve.”4)Plot quantity demanded against its own price: the “individual demand curve” (Dx(px;py,I))
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