andMarketDemand(微观经济学-华侨大学,JeffCaldwpjf.pptx

Chapter 4Individual andIndividual andMarket DemandMarket Demand1Chapter 1Topics to be DiscussednIndividual DemandnIncome and Substitution EffectsnMarket DemandnConsumer Surplus2Chapter 1Topics to be DiscussednNetwork ExternalitiesnEmpirical Estimation of Demand3Chapter 1Individual DemandnPrice ChangeslUsing the figures developed in the previous chapter,the impact of a change in the price of food can be illustrated using indifference curves.4Chapter 1Effect of a Price ChangeFood(units per month)Clothing(units permonth)456U2U3ABDU141220Three separateindifference curvesare tangent toeach budget line.Assume:I=$20PC =$2PF =$2,$1,$.50105Chapter 1Price-Consumption CurveEffect of a Price ChangeFood(units per month)Clothing(units permonth)456U2U3ABDU141220The price-consumptioncurve traces out theutility maximizingmarket basket for thevarious prices for food.6Chapter 1Effect of a Price ChangeDemand CurveIndividual Demand relatesthe quantity of a good thata consumer will buy to theprice of that good.Food(units per month)Priceof FoodHEG$2.0041220$1.00$.507Chapter 1Individual DemandnTwo Important Properties of Demand Curves1)The level of utility that can be attained changes as we move along the curve.The Individual Demand Curve8Chapter 1Individual DemandnTwo Important Properties of Demand Curves2)At every point on the demand curve,the consumer is maximizing utility by satisfying the condition that the MRS of food for clothing equals the ratio of the prices of food andclothing.The Individual Demand Curve9Chapter 1Effect of a Price ChangeFood(units per month)Priceof FoodHEG$2.0041220$1.00$.50Demand CurveE:Pf/Pc=2/2=1=MRSG:Pf/Pc=1/2=.5=MRSH:Pf/Pc=.5/2=.25=MRSWhen the price falls:Pf/Pc&MRS also fall10Chapter 1Individual DemandnIncome ChangeslUsing the figures developed in the previous chapter,the impact of a change in the income can be illustrated using indifference curves.11Chapter 1Effects of Income ChangesFood(units per month)Clothing(units permonth)An increase in income,with the prices fixed,causes consumers to altertheir choice ofmarket basket.Income-Consumption Curve34AU1510BU2D716U3Assume:Pf =$1 Pc =$2 I=$10,$20,$3012Chapter 1Effects of Income ChangesFood(units per month)Priceof foodAn increase in income,from$10 to$20 to$30,with the prices fixed,shifts the consumersdemand curve to the right.$1.004D1E10D2G16D3H13Chapter 1Individual DemandnIncome ChangeslThe income-consumption curve traces out the utility-maximizing combinations of food and clothing associated with every income level.14Chapter 1Individual DemandnIncome ChangeslAn increase in income shifts the budget line to the right,increasing consumption along the income-consumption curve.lSimultaneously,the increase in income shifts the demand curve to the right.15Chapter 1Individual DemandnIncome ChangeslWhen the income-consumption curve has a positive slope:uThe quantity demanded increases with income.uThe income elasticity of demand is positive.uThe good is a normal good.Normal Good vs.Inferior Good16Chapter 1Individual DemandnIncome ChangeslWhen the income-consumption curve has a negative slope:uThe quantity demanded decreases with income.uThe income elasticity of demand is negative.uThe good is an inferior good.Normal Good vs.Inferior Good17Chapter 1An Inferior GoodHamburger(units per month)Steak(units permonth)1530U3CIncome-ConsumptionCurvebut hamburgerbecomes an inferiorgood when the incomeconsumption curvebends backward between B and C.10520510AU1BU2Both hamburgerand steak behaveas a normal good,between A and B.18Chapter 1Individual DemandnEngel CurveslEngel curves relate the quantity of good consumed to income.lIf the good is a normal good,the Engel curve is upward sloping.lIf the good is an inferior good,the Engel curve is downward sloping.19Chapter 1Engel CurvesFood(unitsper month)30481210Income($permonth)20160Engel curves slopeupward fornormal goods.20Chapter 1Engel CurvesEngel curves slopebackward bending for inferior goods.InferiorNormalFood(unitsper month)30481210Income($permonth)2016021Chapter 1Consumer Expendituresin the United StatesEntertainment70094712741514205426544300Owned Dwellings1116172522533243445457939898Rented Dwellings1957217023712536213715401266Health Care1031169719181820205222142642Food2656338541094888542962208279Clothing85997813631772177826143442ExpenditureLess than 1,000-20,000-30,000-40,000-50,000-70,000-($)on:$10,00019,00029,00039,00049,00069,000 and aboveIncome Group(1997$)22Chapter 1Individual Demand1)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.ue.g.movie tickets and video rentalsSubstitutes and Complements23Chapter 1Individual Demand2)Two goods are considered complements if an increase(decrease)in the price of one leads to a decrease(increase)in the quantity demanded of the other.ue.g.gasoline and motor oilSubstitutes and Complements24Chapter 1Individual Demand3)Two goods are independent when a change in the price of one good has no effect on the quantity demandedof the otherSubstitutes and Complements25Chapter 1Individual DemandnSubstitutes and ComplementslIf the price consumption curve is downward-sloping,the two goods are considered substitutes.lIf the price consumption curve is upward-sloping,the two goods are considered complements.nThey could be both!26Chapter 1Income and Substitution EffectsnA fall in the price of a good has two effects:Substitution&IncomelSubstitution EffectuConsumers will tend to buy more of the good that has become relatively cheaper,and less of the good that is now relatively more expensive.27Chapter 1Income and Substitution EffectsnA fall in the price of a good has two effects:Substitution&IncomelIncome EffectuConsumers experience an increase in real purchasing power when the price of one good falls.28Chapter 1Income and Substitution EffectsnSubstitution EffectlThe substitution effect is the change in an items consumption associated with a change in the price of the item,with the level of utility held constant.lWhen the price of an item declines,the substitution effect always leads to an increase in the quantity of the item demanded.29Chapter 1Income and Substitution EffectsnIncome EffectlThe income effect is the change in an items consumption brought about by the increase in purchasing power,with the price of the item held constant.lWhen a persons income increases,the quantity demanded for the product may increase or decrease.30Chapter 1Income and Substitution EffectsnIncome EffectlEven with inferior goods,the income effect is rarely large enough to outweigh the substitution effect.31Chapter 1Income and SubstitutionEffects:Normal GoodFood(units per month)OClothing(units permonth)RF1SC1AU1The income effect,EF2,(from D to B)keeps relativeprices constant but increases purchasing power.Income EffectC2F2TU2BWhen the price of food falls,consumption increases by F1F2 as the consumer moves from A to B.ETotal EffectSubstitutionEffectDThe substitution effect,F1E,(from point A to D),changes the relative prices but keeps real income(satisfaction)constant.32Chapter 1Food(units per month)ORClothing(units permonth)F1SF2TAU1ESubstitutionEffectDTotal EffectSince food is an inferior good,theincome effect is negative.However,the substitution effectis larger than the income effect.BIncome EffectU2Income and SubstitutionEffects:Inferior Good33Chapter 1Income and Substitution EffectsnA Special Case-The Giffen GoodlThe income effect may theoretically be large enough to cause the demand curve for a good to slope upward.lThis rarely occurs and is of little practical interest.34Chapter 1Effect of a Gasoline Tax With a RebatenAssumelPed=-0.5lIncome=$9,000lPrice of gasoline=$135Chapter 1Effect of a Gasoline Tax With a RebateGasoline Consumption(gallons/year)ExpendituresOn OtherGoods($)ACGasoline=1200 gallonsOther expenditures=$7800U21200Original BudgetLineBDU1900AfterGasolineTaxE$.50 Excise TaxGasoline=900 gallonsJFH913.5After Gasoline TaxPlus RebateU3$450 REBATENew budget lineConsumer is worse off36Chapter 1Market DemandnMarket Demand CurveslA curve that relates the quantity of a good that all consumers in a market buy to the price of that good.From Individual to Market Demand37Chapter 1Determining the Market Demand Curve161016322481325326101840471150246Price Individual A Individual B Individual C Market($)(units)(units)(units)(units)38Chapter 1Summing to Obtain aMarket Demand CurveQuantity 1234Price 0551015202530DBDCMarket DemandDAThe market demandcurve is obtained bysumming the consumers demand curves39Chapter 1Market DemandnTwo Important Points1)The market demand will shift to the right as more consumers enter the market.2)Factors that influence the demands of many consumers will also affect the market demand.40Chapter 1Market DemandnElasticity of DemandRecall:Price elasticity of demand measures the percentage change in the quantity demanded resulting from a 1-percent change in price.41Chapter 1Price Elasticity andConsumer ExpenditureDemandIf Price Increases,If Price Decreases,Expenditures:Expenditures:Inelastic(Ep 1)DecreaseIncrease42Chapter 1Market DemandnPoint Elasticity of DemandlFor large price changes(e.g.20%),the value of elasticity will depend upon where the price and quantity lie on the demand curve.43Chapter 1Market DemandnPoint Elasticity of DemandlPoint elasticity measures elasticity at a point on the demand curve.lIts formula is:44Chapter 1Market DemandnProblems Using Point ElasticitylWe may need to calculate price elasticity over portion of the demand curve rather than at a single point.lThe price and quantity used as the base will alter the price elasticity of demand.45Chapter 1Market DemandnAssumelPrice increases from 8$to$10 quantity demanded falls from 6 to 4lPercent change in price equals:$2/$8=25%or$2/$10=20%lPercent change in quantity equals:-2/6=-33.33%or-2/4=-50%Point Elasticity of Demand(An Example)46Chapter 1Market DemandnElasticity equals:-33.33/.25=-1.33 or-.50/.20=-2.54nWhich one is correct?Point Elasticity of Demand(An Example)47Chapter 1Market DemandnArc Elasticity of DemandlArc elasticity calculates elasticity over a range of priceslIts formula is:48Chapter 1Market DemandnArc Elasticity of Demand(An Example)49Chapter 1The Aggregate Demand For WheatnThe demand for U.S.wheat is comprised of domestic demand and export demand.An Example:50Chapter 1The Aggregate Demand For WheatnThe domestic demand for wheat is given by the equation:lQDD=1700-107PnThe export demand for wheat is given by the equation:lQDE=1544-176P51Chapter 1The Aggregate Demand For WheatnDomestic demand is relatively price inelastic(-0.2),while export demand is more price elastic(-0.4).52Chapter 1CDExportDemandABDomesticDemandTotal world demand is the horizontal sum of the domestic demand AB and export demand CD.FTotal DemandEThe Aggregate Demand For WheatWheat(million bushels/yr.)Price($/bushel)02468101214161820100020003000400053Chapter 1Consumer SurplusnConsumer Surplus lThe difference between the maximum amount a consumer is willing to pay for a good and the amount actually paid.54Chapter 1The consumer surplusof purchasing 6 concerttickets is the sum of thesurplus derived from each one individually.Consumer Surplus 6 +5 +4 +3 +2 +1 =21 Consumer SurplusRock Concert TicketsPrice($perticket)23456130114151617181920Market Price55Chapter 1Consumer SurplusnThe stepladder demand curve can be converted into a straight-line demand curve by making the units of the good smaller.56Chapter 1Demand CurveConsumerSurplusActualExpenditureConsumer Surplusfor the Market DemandConsumer SurplusRock Concert TicketsPrice($perticket)23456130114151617181920Market Price57Chapter 1Consumer SurplusnCombining consumer surplus with the aggregate profits that producers obtain we can evaluate:1)Costs and benefits of different market structures2)Public policies that alter the behavior of consumers and firms58Chapter 1The Value of Clean AirnAir is free in the sense that we dont pay to breathe it.nThe Clean Air Act was amended in 1970.nQuestion:Were the benefits of cleaning up the air worth the costs?An Example:59Chapter 1The Value of Clean AirnPeople pay more to buy houses where the air is clean.nData for house prices among neighborhoods of Boston and Los Angeles were compared with the various air pollutants.60Chapter 1The shaded area gives theconsumer surplus generatedwhen air pollution is reduced by 5 parts per 100million of nitrous oxide at a cost of$1000 per part reduced.Valuing Cleaner Air200010010005ANOX(pphm)Pollution ReductionValue($per pphmof reduction)61Chapter 1Network ExternalitiesnUp to this point we have assumed that peoples demands for a good are independent of one another.nIf fact,a persons demand may be affected by the number of other people who have purchased the good.62Chapter 1Network ExternalitiesnIf this is the case,a network externality exists.nNetwork externalities can be positive or negative.63Chapter 1Network ExternalitiesnA positive network externality exists if the quantity of a good demanded by a consumer increases in response to an increase in purchases by other consumers.nNegative network externalities are just the opposite.64Chapter 1Network ExternalitiesnThe Bandwagon EffectlThis is the desire to be in style,to have a good because almost everyone else has it,or to indulge in a fad.lThis is the major objective of marketing and advertising campaigns(e.g.toys,clothing).65Chapter 1Positive NetworkExternality:Bandwagon EffectQuantity(thousands per month)Price($per unit)D202040When consumers believe more people have purchased theproduct,the demand curve shifts further to the the right.D4060D6080D80100D10066Chapter 1DemandPositive NetworkExternality:Bandwagon EffectQuantity(thousands per month)Price($per unit)D2020406080100D40D60D80D100The market demandcurve is found by joiningthe points on the individual demand curves.It is relativelymore elastic.67Chapter 1DemandPositive NetworkExternality:Bandwagon EffectQuantity(thousands per month)Price($per unit)D2020406080100D40D60D80D100Pure PriceEffect48Suppose the price fallsfrom$30 to$20.If there were no bandwagon effect,quantity demanded wouldonly increase to 48,000$20$3068Chapter 1DemandPositive NetworkExternality:Bandwagon EffectQuantity(thousands per month)Price($per unit)D2020406080100D40D60D80D100Pure PriceEffect$2048BandwagonEffectBut as more people buythe good,it becomes stylish to own it and the quantity demandedincreases further.$3069Chapter 1Network ExternalitiesnThe Snob EffectlIf the network externality is negative,a snob effect exists.nThe snob effect refers to the desire to own exclusive or unique goods.nThe quantity demanded of a“snob”good is higher the fewer the people who own it.70Chapter 1Negative NetworkExternality:Snob EffectQuantity (thousandsper month)Price($per unit)Demand2D2$30,000$15,00014Pure Price EffectOriginally demand is D2,when consumers think 2000 people have bought a good.468D4D6D8However,if consumers think 4,000 people have bought the good,demand shifts from