1. INDIVIDUAL AND MARKET DEMAND

2. Drawing on Chapter 4
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3. Overview Individual Demand Market Demand ∆P  ∆QD ∆M  ∆QD
Income & Substitution Effects of ∆P
Responsiveness to ∆P
Market Demand
QD(P,…) = ∑i QiD(P,…)
Price Elasticity
Dependence on Income, Income Elasticity
Cross-price Elasticities
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4. Individual Demand ∆P  ∆QD
For good X, the price-consumption curve (PCC) traces the set of optimal bundles on an indifference curve map as PX varies (holding income and other prices constant).
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5. A Price-Consumption Curve
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6. The Matching Individual Demand Curve
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7. The Effects of Changes in Income
∆M  ∆QD
For goods X and Y,
the income-consumption curve (ICC) traces the set of optimal bundles on an indifference curve map as income (M) varies (holding all prices constant).
For good X,
the Engel curve plots the relationship between QD and M.
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8. Distinguish Two Types of Goods
Normal: ∆QD is same direction as ∆M
Inferior: ∆QD is opposite direction from ∆M
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9. Figure 4.3: An Income-Consumption Curve
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10. Figure 4.4: An Individual Consumer’s Engel Curve
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11. Figure 4.5: The Engel Curve for Normal and Inferior Goods
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12. Income and Substitution Effects
Substitution effect: the part of ∆QD  ∆P that would result from ∆P with utility, as well as other prices, held constant.
Income effect: the part of ∆QD  ∆P that would result from the associated change in real purchasing power, with relative prices held constant.
Total effect: the sum of the substitution and income effects.
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13. Figure 4.6: The Total Effect of a Price Increase
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14. Figure 4.7: The Substitution and Income Effects of a Price Change
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15. Figure 4.8: Income and Substitution Effects for an Inferior Good
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16. Figure 4.9: The Demand Curve for a Giffen Good
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17. Figure 4.10: Income and Substitution Effects for Perfect Complements
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18. Figure 4.11: Income and Substitution Effects for Perfect Substitutes
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19. Responsiveness to ∆P: Substitutability and Income Share
Figure 4.12: … Effects of a Price Increase for Salt
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20. Responsiveness to ∆P (cont.)
Figure 4.13: … Effects for a Price-Sensitive Good
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21. Market Demand: QD(P,…) = ∑i QiD(P,…)
Figure Linear Individual Demands over Varying Price Ranges
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22. Market Demand: QD(P,…) = ∑i QiD(P,…)
Figure Linear Individual Demands over Identical Price Ranges
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23. Market Demand: QD(P,…) = ∑i QiD(P,…)
Figure Identical Linear Individual Demands
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24. Elasticities of Demand: Definitions
Ratio of proportional (%) change in quantity demanded to proportional (%) change in a determinant (call it X) of demand
Proportional rate of change of quantity demanded relative to that of a determinant of demand
The percentage change in the quantity of a good demanded that results from a 1% change in a determinant of demand
%∆QD/%∆X = (∆QD/QD)/(∆X/X)

25. Calculating Price Elasticity of Demand
Point-slope method
Arc method
Compare at 04 Examples - Elasticities.xlsx.

26. Ranges of Price Elasticity of Demand
ε = -1 unit elastic
-1 < ε < 0 inelastic

27. Figure A4.1: A Constant Elasticity Demand Curve
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