Скачать презентацию Chapter 4 More Demand Theory 4 1 Скачать презентацию Chapter 4 More Demand Theory 4 1

2eee91d094da5afddd04fd556b536bb3.ppt

  • Количество слайдов: 29

Chapter 4 More Demand Theory 4. 1 © 2005 Pearson Education Canada Inc. Chapter 4 More Demand Theory 4. 1 © 2005 Pearson Education Canada Inc.

The Law of Demand u The law of demand implies an inverse relationship between The Law of Demand u The law of demand implies an inverse relationship between price and quantity demanded. u When the price and quantity of a good are positively related, the good is called a Giffen Good. 4. 2 © 2005 Pearson Education Canada Inc.

Income and Substitution Effects u The substitution effect of a change in p 1 Income and Substitution Effects u The substitution effect of a change in p 1 is associated with the relative change in the price of good 1. u The income effect of a change in p 1 is associated with the change in real income. 4. 3 © 2005 Pearson Education Canada Inc.

Figure 4. 1 A Giffen good 4. 4 © 2005 Pearson Education Canada Inc. Figure 4. 1 A Giffen good 4. 4 © 2005 Pearson Education Canada Inc.

Figure 4. 2 Income and substitution effects for a price increase 4. 5 © Figure 4. 2 Income and substitution effects for a price increase 4. 5 © 2005 Pearson Education Canada Inc.

Figure 4. 3 Income and substitution effects for a price decrease 4. 6 © Figure 4. 3 Income and substitution effects for a price decrease 4. 6 © 2005 Pearson Education Canada Inc.

Income and Substitution Effects If indifference curves are smooth and convex and if the Income and Substitution Effects If indifference curves are smooth and convex and if the consumer buys a positive quantity of both goods, then the substitution effect is always negatively related to the price change. u For a normal good, the income effect is negatively related to the price change. u For an inferior good, the income effect is positively related to the price change. u 4. 7 © 2005 Pearson Education Canada Inc.

Compensatory Income u After a price change, the minimum income that allows the consumer Compensatory Income u After a price change, the minimum income that allows the consumer to attain the original indifference curve is called the compensatory income. u The budget line associated with the compensatory income is the compensated budget line. 4. 8 © 2005 Pearson Education Canada Inc.

Figure 4. 4 The nonpositive substitution effect 4. 9 © 2005 Pearson Education Canada Figure 4. 4 The nonpositive substitution effect 4. 9 © 2005 Pearson Education Canada Inc.

The Compensated Demand Curve u The compensated demand curve identifies the consumer’s utility maximizing The Compensated Demand Curve u The compensated demand curve identifies the consumer’s utility maximizing bundle when, as a result of a price change, the consumer’s income is adjusted to keep him/her on the same indifference curve. u The compensated demand curve reflects the substitution effect and cannot be upward sloping. 4. 10 © 2005 Pearson Education Canada Inc.

Figure 4. 5 The compensated demand curve 4. 11 © 2005 Pearson Education Canada Figure 4. 5 The compensated demand curve 4. 11 © 2005 Pearson Education Canada Inc.

Compensating and Equivalent Variation u Equivalent variation identifies the variation in income that is Compensating and Equivalent Variation u Equivalent variation identifies the variation in income that is equivalent to being able to buy good x at a given price. u Compensating variation identifies the variation in income that compensates for the right to buy good x at a given price. 4. 12 © 2005 Pearson Education Canada Inc.

Figure 4. 8 Measuring the benefit of a new good 4. 13 © 2005 Figure 4. 8 Measuring the benefit of a new good 4. 13 © 2005 Pearson Education Canada Inc.

From Figure 4. 8 u Mr. Polo’s non-member initial equilibrium is E 0 on From Figure 4. 8 u Mr. Polo’s non-member initial equilibrium is E 0 on I 0. u Equilibrium as a member is E 1 on I 1. u Equivalent variation is EV. With no membership, this additional income would yield indifference curve I 1. u Compensating variation is CV. Given that he is a member, this reduction in income yields indifference curve I 0. 4. 14 © 2005 Pearson Education Canada Inc.

Figure 4. 9 Measuring the cost of a price change 4. 15 © 2005 Figure 4. 9 Measuring the cost of a price change 4. 15 © 2005 Pearson Education Canada Inc.

From Figure 4. 9 u Low price of P 1 gives equilibrium of E From Figure 4. 9 u Low price of P 1 gives equilibrium of E 0 on I 0. u Equilibrium with higher price of P 1 is at E 1 on I 1. u With a lower price, reducing income by EV yields I 1. u With a higher price, increasing income by CV would yield I 0. 4. 16 © 2005 Pearson Education Canada Inc.

Figure 4. 10 The case in which CV equals EV 4. 17 © 2005 Figure 4. 10 The case in which CV equals EV 4. 17 © 2005 Pearson Education Canada Inc.

Figure 4. 11 Consumer’s surplus for a new good 4. 18 © 2005 Pearson Figure 4. 11 Consumer’s surplus for a new good 4. 18 © 2005 Pearson Education Canada Inc.

Figure 4. 12 Consumer’s surplus for a price reduction 4. 19 © 2005 Pearson Figure 4. 12 Consumer’s surplus for a price reduction 4. 19 © 2005 Pearson Education Canada Inc.

Figure 4. 13 Marginal values and marginal rates of substitution 4. 20 © 2005 Figure 4. 13 Marginal values and marginal rates of substitution 4. 20 © 2005 Pearson Education Canada Inc.

Figure 4. 14 Total value and marginal value 4. 21 © 2005 Pearson Education Figure 4. 14 Total value and marginal value 4. 21 © 2005 Pearson Education Canada Inc.

Figure 4. 15 Equal marginal values 4. 22 © 2005 Pearson Education Canada Inc. Figure 4. 15 Equal marginal values 4. 22 © 2005 Pearson Education Canada Inc.

Application: Two Part Tariff u What combination of camera price (pc) and film price Application: Two Part Tariff u What combination of camera price (pc) and film price (p 1) maximize profits? u Cost of producing camera is $5, cost of making film is 1$. u The firm’s profit maximizing strategy is to sell the film at cost and charge the corresponding reservation price for the camera, area GAF (Fig 4. 16). 4. 23 © 2005 Pearson Education Canada Inc.

Figure 4. 16 The Polaroid pricing problem 4. 24 © 2005 Pearson Education Canada Figure 4. 16 The Polaroid pricing problem 4. 24 © 2005 Pearson Education Canada Inc.

Figure 4. 17 The Paasche quantity index 4. 25 © 2005 Pearson Education Canada Figure 4. 17 The Paasche quantity index 4. 25 © 2005 Pearson Education Canada Inc.

Paasche Quantity Index 4. 26 © 2005 Pearson Education Canada Inc. Paasche Quantity Index 4. 26 © 2005 Pearson Education Canada Inc.

Laspeyres Quantity Index 4. 27 © 2005 Pearson Education Canada Inc. Laspeyres Quantity Index 4. 27 © 2005 Pearson Education Canada Inc.

Price Indices 4. 28 © 2005 Pearson Education Canada Inc. Price Indices 4. 28 © 2005 Pearson Education Canada Inc.

Figure 4. 18 An index-number puzzle 4. 29 © 2005 Pearson Education Canada Inc. Figure 4. 18 An index-number puzzle 4. 29 © 2005 Pearson Education Canada Inc.