Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Download No Slide Title
Document related concepts
Transcript
ESC Toulouse Microeconomics Topic 3: Demand Motivation & Overview • Focus switches from market to individual demand • Greatest pleasure given limited income – utility function / budget constraint • What happens when prices or income changes? – comparative statics Preferences • Represent preferences using utility function – U=U(x,y) x and y are two goods • Indifference curves – all points on a given indifference curve represent same utility – U U(x1 , y1 ) Quantity of good y per period Qy1 1 2 Qy2 U U 0 Qx1 Qx2 Fig 3.3 An indifference curve for the goods x and y Quantity of good x per period Preferences II • Properties of indifference curves – – – – slope downwards smooth continuous convex • curves bowed towards origin Budget constraint • Can only afford to buy limited amounts of goods – represent affordable combinations using budget constraint – position depends upon ratio of good prices and income Qy M2 Py1 M2 M1 Py1 M2 0 Fig 3.6 A set of budget constraints M3 M1 Px1 M1 Px2 M2 Px1 Qx Utility maximisation • Maximise utility subject to budget constraint • Most north easterly indifference curve possible • Point of tangency between budget constraint and indifference curve Qy * Y Q ~ U U U U U U 0 QX* Fig 3.7 Utility maximization subject to a budget constraint Qx Efficient Budget Allocation • Marginal utility – MUx – increase in utility from one more unit good X • Slope of indifference curve – minus MUx / MUY Qy Qy1 Qy Qy2 U U Qx1 Fig 3.8a Qx2 Qx Qx Qy * Qy slope U / Qx U / Qy U U * Qx Fig 3.8b Qx Efficient Budget Allocation II • Slope budget constraint – minus Px / PY • Efficient allocation – MUx / PX = MUY / PY • Equalise marginal utility per Franc spent Qy * Q y1 slope Px Py * Q x1 Fig 3.8c Qx Change in Price • Fall in price • Budget constraint swings outwards • Relative prices change – substitution effect • Real income increases – income effect Qy m Py2 Y1 a b Y2 U2 U1 0 X1 Figure 3.9 A fall in the price of good x X2 m Px1 m Px2 Qx Qy d Y1 Y2 a c Y3 0 b X2 X1 X3 SE IE Total effect Fig 3.10 The substitution and income effects of a fall in the price of good x Qx Change in Price II • Normal good – increase in income leads to higher consumption • Inferior good – increase in income leads to lower consumption – income and substitution effects opposed • Giffen good – income effect outweighs substitution effect Qy m Py1 Y2 Y1 U2 Y3 U1 0 X1 X2 X3 Fig 3.11 A fall in the price of good x, where good x is an inferior good Qx Qy Y2 Y1 U2 Y3 U1 0 X2 X1 X3 Fig 3.12 A fall in the price of good x, where good x is an Giffen good Qx Team Tasks 3 - Demand • What happens to demand for your organisation’s good when its price is increased? • What happens to demand for your organisation's good when income increases? • Under what circumstances will the demand for your organisation’s good fall when its price falls? • Are there are any advantages in your organisation producing an inferior good?
