Beruflich Dokumente
Kultur Dokumente
&
CONSUMER
EQUILIBRIUM
Ut ility : Us e satis faction deriv ed f rom
consum pt ion.
1 20 20
2 38 18
3 53 15
4 64 11
5 70 6
6 70 0
7 62 -8
8 46 -16
Tot al ut il ity is maxim um (7 0) when margina l
ut ility is zero i.e. at the 6 th un it.
20 Q
18 R
16
S
14
12
T
10
6 W
-2
-4
-6
-8
-10
-12
-14
-16 MU
-18
Lim ita tions o f law :
1. Suitable units
2. Suitable tim e
3. No change in consum ers t aste
4. Con stant incom e
5. Rare c ollectio ns
6. Cha nge in oth er p eoples stock
7. Othe r poss essions
8. Fashion
9. Not app licable to money
10. Norm al person
Ma rginal u ti lit y o f m oney:
Does th e la w of dimi nish ing MU apply to
mo ney?
15 A 3 8 3 3:1
14 4 6 4 2:1
5 5 5 1:1
13
12 11A + 2 M
11 B
10
Oranges 9 8A + 3 M
8 C
7 6A + 4 M
6 D
5 E 5A + 5M
4
3
2
1
0
1 2 3 4 5 6 7
Mangoes
Oranges
IC5
IC4
IC3
IC2
IC1
Mangoes
1. In com e ef fe ct
2. Su bs titut ion ef fect
Whe n th e price of a good X fall, th e rea l
incom e of the cons umer will go up .
ED = 40/2 0 = 2
160 D
150
140
130 P2 B
120
110
100
90 P1 A
80
70
60
50 D
40
30
20
10
Q2 Q1
40 80 120 160 200 240 280 320 360
UNIT ELASTIC
ELASTIC DEMAND
1
1000
500
0.5
1 2 3 1 2
IN-ELASTIC
5 10 15
Dr aw the Dema nd Curv e and calc ulat e the ED.
Calc ulat e Pric e elas tic it y f or t he f oll ow ing:
P Q
6 0 6
Elastic
4 10 4
Unit Elastic
2 20 2
In-elastic
0 30 0 10 20 30 40
Pri ce E las tic ity o f S upply:
1 2 3 4 5 6 7 8
Quantity of Water