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

Determine the studies of managerial economics, Determine the studies of Man...

Determine the studies of Managerial economics Managerial economics studies the application of techniques, principles as well as concepts of economics to managerial problems of

Homework, What market type does the company you work for operate under? Wha...

What market type does the company you work for operate under? What makes you think this? Do you think that this is the right market type for your company to operate in? Explain you

Cost parameter, A toy manufacturer makes output according to the production...

A toy manufacturer makes output according to the production function: where n is the number of workers employed by the firm, O is a technological parameter and g the worker

Describe about the theory of profit, Describe about the Theory of profit ...

Describe about the Theory of profit Every industrial and business enterprise aims at maximising profit. Profit is the difference between total economic cost and totalrevenue. P

Structural unemployment, a)      In 1948, the money GNP was $520 billion an...

a)      In 1948, the money GNP was $520 billion and the price index was 120.  In order to   make the 1948 GNP comparable with the base year, the 1948 GNP must be adjusted    to:

Direct action, Direct Action Direct action in more than one from has be...

Direct Action Direct action in more than one from has been employed by the central banks either as an alternative to their discount rate policy or open market operations or tog

Central bank, CENTRAL BANK A modern central bank performs so many funct...

CENTRAL BANK A modern central bank performs so many functions of different nature that it is difficult to give any brief yet accurate definition of a central bank. Any definiti

Fiscal policy, Meaning of Fiscal Policy In this general theory, Keynes ...

Meaning of Fiscal Policy In this general theory, Keynes used fiscal policy when referring to the influence of taxation on saving and government investment spending financed thr

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