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Demand

Demand. Consumer Demand. Consumer’s demand functions :. Changes in Income Given Prices. Both goods 1 and 2 are normal. Normal Goods. Good 1 is normal . Good 2 is inferior :. An Inferior Good. Income Offer and Engel Curves. Income Offer Curve Engel Curve.

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Demand

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  1. Demand

  2. Consumer Demand Consumer’s demand functions:

  3. Changes in Income Given Prices

  4. Both goods 1 and 2 are normal Normal Goods

  5. Good 1 is normal. Good 2 is inferior: An Inferior Good

  6. Income Offer and Engel Curves Income Offer Curve Engel Curve

  7. Demand function for good 1: Demand function for good 2: Cobb-Douglas

  8. Income Offer Curve: Engel Curve: Cobb Douglas

  9. Demand function for good 1: if if if Perfect Substitutes

  10. Income Offer Curve: Engel Curve: Perfect Substitutes (with )

  11. Optimal choice: Budget line: Demand function for goods 1 and 2: Perfect Complements

  12. Income Offer Curve: Engel Curve: Perfect Complements

  13. Homothetic Preferences • Consumer’s preferences only depend on the ratio of the two goods: If Then, for • Example: Cobb-Douglas, Perfect substitutes, Perfect Complements. • Properties: straight income offer curve and Engel curve.

  14. Luxury Good

  15. Necessary Good

  16. Changes in Prices • Fix income and price of one good and change price of the other.

  17. Price of good 1 decreases. Demand for good 1 increases. Ordinary Goods

  18. Price of good 1 decreases. Demand for good 1 decreases. Giffen Goods

  19. Price Offer Curve: Demand Curve: Price Offer and Demand Curves

  20. Price Offer Curve: Demand Curve: Perfect Complements

  21. Substitutes • Good 1 is a substitute for good 2 when:

  22. Complements • Good 1 is a complement to good 2:

  23. Consider a demand function The inverse demand function is Cobb-Douglas example: Inverse Demand Function

  24. Inverse Demand Curve Optimal choice: Suppose: (composite good) Rearrange: Inverse Demand Curve

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