Econ103part04 - Part 4 The Theory of Demand We have drawn...

Info iconThis preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
Part 4 The Theory of Demand We have drawn all our demand curves downward sloping Why do economists think demand curves normally slope downward? Market demand curves are aggregations of individual (or household) demand curves What factors will affect a household’s demand for a good?
Background image of page 1

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

View Full DocumentRight Arrow Icon
Household Consumption Choices Households buy a variety of goods (a “bundle” of goods) Different households buy different bundles of goods Household choice will depend on: - income - relative prices of goods - preferences Income and prices can be shown in a budget constraint What shapes preferences? How can a given set of preferences be represented?
Background image of page 2
Budget Constraint Qy Qx Affordable Unaffordable Budget constraint with given income = I and given prices Px and Py: I = PxQx + PyQy
Background image of page 3

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

View Full DocumentRight Arrow Icon
Preferences and Utility Which of the affordable combinations will a household choose to purchase? The intuitive answer is that the household will choose the bundle of goods that it “likes the best” or provides the most satisfaction of all the affordable bundles More formally, if the degree of satisfaction of all wants and desires can be measured on a single “utility” scale, the household will choose the bundle of goods that maximizes utility
Background image of page 4
Cardinal Utility Theory When the idea of a utility measure was first proposed in economics it was sometimes assumed that one could think of units of utility in the same way as units of weight or temperature Such a measure has a defined unit Many possible units of measure but they are all linear transformations of each other (eg: deg F = 32 + 9/5 C)
Background image of page 5

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

View Full DocumentRight Arrow Icon
Total and Marginal Utility More goods give more total utility
Background image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 01/28/2011 for the course ECON 103 taught by Professor Rutherford during the Winter '10 term at University of Victoria.

Page1 / 27

Econ103part04 - Part 4 The Theory of Demand We have drawn...

This preview shows document pages 1 - 7. Sign up to view the full document.

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