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    Important Properties of Demand Curve

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    syed hamza
    This document discusses key concepts in consumer demand including: 1. As consumers move along the demand curve, the level of utility attained changes. At each point, consumers maximize utility given their budget constraint. 2. An increase in income shifts the demand curve to the right as consumers can purchase more goods at each price point. The income-consumption curve also shifts right as consumption increases with higher income levels. 3. Goods are classified as normal or inferior based on whether demand increases or decreases with income as shown by positively or negatively sloped income-consumption curves.

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    Important Properties of Demand Curve

    Uploaded by

    syed hamza
    10 views6 pages
    This document discusses key concepts in consumer demand including: 1. As consumers move along the demand curve, the level of utility attained changes. At each point, consumers maximize utility given their budget constraint. 2. An increase in income shifts the demand curve to the right as consumers can purchase more goods at each price point. The income-consumption curve also shifts right as consumption increases with higher income levels. 3. Goods are classified as normal or inferior based on whether demand increases or decreases with income as shown by positively or negatively sloped income-consumption curves.

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    Lecture

    Original Title

    Lecture No_ 5

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    This document discusses key concepts in consumer demand including: 1. As consumers move along the demand curve, the level of utility attained changes. At each point, consumers maximize utility given their budget constraint. 2. An increase in income shifts the demand curve to the right as consumers can purchase more goods at each price point. The income-consumption curve also shifts right as consumption increases with higher income levels. 3. Goods are classified as normal or inferior based on whether demand increases or decreases with income as shown by positively or negatively sloped income-consumption curves.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    10 views6 pages

    Important Properties of Demand Curve

    Uploaded by

    syed hamza
    This document discusses key concepts in consumer demand including: 1. As consumers move along the demand curve, the level of utility attained changes. At each point, consumers maximize utility given their budget constraint. 2. An increase in income shifts the demand curve to the right as consumers can purchase more goods at each price point. The income-consumption curve also shifts right as consumption increases with higher income levels. 3. Goods are classified as normal or inferior based on whether demand increases or decreases with income as shown by positively or negatively sloped income-consumption curves.

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    of 6

    IMPORTANT PROPERTIES OF DEMAND

    CURVE
    1. The level of utility that can be attained changes as we
    move along the curve.
    2. At every point on the demand curve, the consumer is
    maximizing utility by satisfying the condition that MRS of
    food for clothing equals the ratio of the prices of food and
    clothing
    EFFECTS OF INCOME CHANGES
    • An increase on income, from $ 10 to $ 20 to $30, with the prices
    fixed, shifts the consumer’s demand curve to the right.
    • The income –consumption curve traces out he utility-maximizing
    combinations of food and clothing associated with every income
    level.
    • An increase in income shifts the budget line to the right,
    increasing consumption along the income-consumption curve.
    • Simultaneously, the increase in income shifts the demand curve
    to the right.
    NORMAL GOOD VERSUS INFERIOR GOOD
    • When the income-consumption curve has a positive
    slope, the quantity demanded increase with income.
    • The income elasticity of demand is positive. The good
    is a normal good.
    • When the income-consumption curve has a negative
    slope the quantity demanded decrease with income.
    • The increase elasticity of demand is negative. The
    good is an inferior good.
    ENGEL CURVES
    • The Engel curves relate the quantity of good consume
    to income. If the good is a normal good, the Engel
    curve is upward sloping.
    • If the good ia an inferior good ,the Engel curve is
    downward sloping
    SUBSTITUTES AND COMPLEMENT
    • Two goods are considered substitutes if an increase
    (decrease) in the price of one leads to an increase
    (decrease) in the quantity demanded of the other.
    • For example: movie tickets and video rentals. If the price
    consumption curve is downward-sloping, the two goods re
    considered substitutes.
    • Two good are considered complements if an increase
    [decrease] in the price of one leads to a decrease
    [increase] in the quantity demanded of the other .
    • For example; gasoline and motor oil.
    SUBSTITUTES AND COMPLEMENT
    • If the price consumption curve is upward –sloping, the
    two goods are considered complements .They could be
    both;
    • Two goods are independent when a change in the price
    of one good has no effect on the quantity demanded of
    the other.
    • A fall in the price of a good has two effects: Substitution
    and Income

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