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

Public expenditure, PUBLIC EXPENDITURE The accounts of the central gov...

PUBLIC EXPENDITURE The accounts of the central government are centered on two funds, the Consolidated Fund, which handles the revenues form taxation and other miscellaneous re

Balance of payments, BALANCE OF PAYMENTS The Balance of Payments of a ...

BALANCE OF PAYMENTS The Balance of Payments of a country is a record of all financial transactions between residents of that country and residents of foreign countries.  (Resi

Cost, define scarcity and opportunity cost..

define scarcity and opportunity cost..

Direct control and moral suasion, Direct control and Moral Suasion Wit...

Direct control and Moral Suasion Without actually using the above weapons, the central bank can attempt simply to use "moral suasion" to persuade the commercial banks to restr

The governed economy, THE GOVERNED ECONOMY The governed economy contai...

THE GOVERNED ECONOMY The governed economy contains central authorities often simply called "the government" - who levy taxes on firms and households and which engages in numer

Illustrate about demand theory, Illustrate about Demand theory Demand t...

Illustrate about Demand theory Demand theory is one of the core theories of consumer behaviour andmicroeconomics. It attempts at answering questions regarding the magnitude of

Search theories - a brief'' historical overview, SEARCH THEORIES  -  A BR...

SEARCH THEORIES  -  A BRIEF' HISTORICAL OVERVIEW   A search theory of unemployment is found even in the writings of A. C. Pigou in  the inter-war  period. To explain the  high

Buffer stocks and stabilization funds - stabilize farm price, Buffer stocks...

Buffer stocks and stabilization funds In this case the government buys up part of the supply when output is excessive, stores this surplus, and resells it to consumers in time

Discuss profit maximizing model in detail, Question 1. Discuss the practic...

Question 1. Discuss the practical application of Price elasticity and Income elasticity of demand Question 2. Discuss profit maximizing model in detail Question 3. Descr

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