The demand curve, Managerial Economics

Assignment Help:

The demand curve

Suppose that starting from a condition of equilibrium, the price of X falls relative to Y.  We now have a condition where the utility from the last shilling spent on X will be greater than the utility from the last shillings spent on Y.  Mathematically this can be written as:

623_demand curve.png

In order to restore the equilibrium the consumer will buy more of X (and less of Y), thus reducing the marginal utility of X.  The consumer will continue substituting X for Y until equilibrium is achieved.  Thus we have attained the normal demand relationship that, ceteris paribus, as the price of X falls, more of it is bought.  We have therefore a normal downward-sloping demand curve.  The demand curve we have derived is the individuals' demand curve for a product.  The market demand curve can be then obtained by aggregating all the individual demand curves.

The explanation we have obtained here is of the price (or substitution) effect.


Related Discussions:- The demand curve

Describe the status goods of law of demand, Describe the Status goods of la...

Describe the Status goods of law of demand The law doesn't concern the commodities that function as a 'status symbol', add to the social status or exhibit prosperity and opulen

Assumptions of monopolistic competition, Assumptions of Monopolistic Compet...

Assumptions of Monopolistic Competition Monopolistic competition as the name implies, combines features from both perfect competition and monopoly.  It has the following featu

Disadvantages of the planned economy, Disadvantages of the Planned System ...

Disadvantages of the Planned System The centrally planned economies suffer from the following limitations: Lack of choice:   Consumers have little influence over what is p

Indifference curves, Indifference curves In order to explain indiffere...

Indifference curves In order to explain indifference curves, we will again make the simplifying assumption that the consumer buys two goods, x and y. The table below gives

Objective of fiscal policy, Objective of Fiscal Policy As an instrument...

Objective of Fiscal Policy As an instrument of macroeconomic policy, the goals of fiscal policy are likely to be different in different countries and in the same country in dif

Quantitative Analysis, How has quantitative analysis changed the current sc...

How has quantitative analysis changed the current scenario in the management world today? Focus must be on the business world specifically in the context of Asian Countries.

Features of mixed economy, Features of this system The mixed economy i...

Features of this system The mixed economy includes elements of both market and planned economies.  The government operates and controls the public sector, which typically cons

Types of elasticity, what are the examples of the types of elasticity (pri...

what are the examples of the types of elasticity (price,income & cross elaticity

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd