Derive the demand curve? To show what the consumer should do to maximize utility‚ a budget line must be added to the preferences shown in the indifference curves. The picture below adds one. Point a is not attainable because it lies to the right of the budget line. The consumer is indifferent between points b and d because they lie on the same indifference curve‚ but point d is cheaper than b because d lies below the budget line. The consumer wants to get on the highest indifference curve affordable
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Why the aggregate demand curve slopes downward: To answer this question‚ we recall that the components of economy’s GDP: Y = C + I + G + NX We assume that government spending is fixed. The other three components: consumption‚ investment‚ and net exports depend on economic conditions and on the price level. 1. The price level and consumption: The wealth effect: Ex: The nominal value of a dollar is fixed‚ yet‚ the real value of a dollar is not fixed. Coca Pizza 1 $ 1 0.5$ 2 → A decrease
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• The demand curve is flatter (more horizontal) the closer the substitutes for the product and the less diminishing marginal utility is at work for the buyers. • The dependent variable in demand analysis is the quantity (the number of units) sold. The independent variables are price‚ income of buyers‚ the price of substitutes‚ and the price of complements. • An increase in income shifts the demand curve to the right for normal good. It goes to the left for an inferior good. • An increase in the
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1. Demand Curve for Oligopolistic Market. Above the kink‚ demand is relatively elastic because all other firms’ prices remain unchanged. Below the kink‚ demand is relatively inelastic because all other firms will introduce a similar price cut‚ eventually leading to a price war. Therefore‚ the best option for the oligopolist is to produce at point E which is the equilibrium point and the kink point. This is a theoretical model proposed in 1947‚ which has failed to receive conclusive evidence for
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We have a certain commodity‚ `pure Malaysia Laptop’‚ whose market we are going to analyze. Assume that exogenous (external) forces are equal in magnitude‚ while supply–demand curves are unitary elastic. Given a certain event/scenario‚ (a) analyze the curve/s affected‚ shifts or movements and the direction‚ and (b) effect to equilibrium price (P*) and equilibrium quantity (Q*) Scenario 1 a. Prices of optical drives suddenly increase The production cost has increased so the supply
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The Compensated Demand Curve Definition: the compensated demand curve is a demand curve that ignores the income effect of a price change‚ only taking into account the substitution effect. To do this‚ utility is held constant from the change in the price of the good. In this section‚ we will graphically derive the compensated demand curve from indifference curves and budget constraints by incorporating the substitution and income effects‚ and use the compensated demand curve to find the compensating
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Movement along the demand curve: There are many factors determining demand- the prime one being price. Price and quantity are the two components which form the demand curve. Any change in these two variables doesn’t cause a shift in the demand curve but a movement along what is already existent. When prices vary‚ quantity is altered. Usually‚ applying the law of demand‚ more will be consumed when prices drop and vice versa. When more goods are consumed due to a drop in prices there is an expansion
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Assumptions of Monopoly Market: The monopoly describes an industry by comprising a single firm. In other words‚ the firm and the industry are one and the same. In the absence of regulation‚ monopolists can exercise control over the prices they charge for products and services. Of course‚ in reality‚ it is often difficult to define industries (whether in terms of product produced or area covered)‚ which often causes problems in defining monopolies. The three main assumptions of monopoly are: • Single
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prices and wages when they set nominal prices and wages. If expected inflation is higher‚ newly set prices and wages will be higher. d Draw the relevant AS curves showing what will happen if expected inflation falls. Label everything and discuss (typed). When the inflation falls‚ the AS curves shit upward‚ because the price level will increase. SECTION TWO: 2 points Explain for each event whether it changes the short-run aggregate supply‚ long-run aggregate
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in which transaction between private parties are free from tariffs‚ government subsidies‚ and enforced monopolies‚ with only enough government regulation sufficient to protect property rights against theft and aggression. The phrase laissez-faire is French and literally means “let them do”. But it broadly implies “let it be”‚ or “leave it alone”. A laissez-faire state and completely free market has never existed‚ though the degree of government regulation varies considerably. The basic characteristics
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