Tuesday

 




Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 7 Topics for Further Study
Chapter 21 of 36 The Theory of Consumer Choice
Section 16 of 26
…
Figure 11 – Deriving the Demand Curve
Panel (a) shows
· when the price of Pepsi falls from $2 to $1
· the consumer's optimum
moves from point A to point B
· the quantity of Pepsi consumed rises from 250 to 750 pints
Panel (b) demand curve reflects the relationship between the price and the quantity demanded.
…
We have seen how changes in the price of a good alter the consumer's budget constraint and therefore the quantities of the two goods that he chooses to buy.
We can consider a consumer's demand curve as a summary of the optimal decisions that arise from his budget constraint and indifference curves.
…
Figure 11 panel (a) shows when the price of a pint falls from $2 to $1 the consumer's budget constraint shifts outward from initial to new.
Because of both income and substitution effects the consumer increases his purchases of Pepsi from 250 to 750 pints.
Panel (b) shows the demand curve that results from his consumption decisions.
In this way, the theory of consumer choice provides the theoretical foundation for the consumer's demand curve.
… …
theoretical foundation
riron teki kiban
理論的基盤

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