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New PDF release: Modern Microeconomics

By A. Koutsoyiannis (auth.)

ISBN-10: 0333182855

ISBN-13: 9780333182857

ISBN-10: 1349156035

ISBN-13: 9781349156030

ISBN-10: 3713713723

ISBN-13: 9783713713726

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1 we show the demands of four consumers at various prices of a certain commodity and the total market demand. 30. We observe that although for consumer B commodity xis a Giffen good, the market demand has the normal negative slope, because the demands of other consumers more than offset the Giffen effect. 1 Individual and market demand Price Quantity demanded by consumer A Quantity demanded by consumer B Quantity demanded by consumer C Quantity demanded by consumer D Market demand 2 4 6 8 10 12 14 16 18 20 40 30 24 18 14 10 8 6 4 3 4 2 45 35 30 20 15 13 10 8 0 0 18 16 13 12 11 8 6 4 0 0 107 83 72 57 50 38 29 21 6 3 5 7 10 7 5 3 2 0 Economic theory does not define any particular form of the demand curve.

Only points lying on the contract curve represent optimal distribution of the available quantities of x and y between the two consumers, in the sense that any divergence from this curve implies a lower level of satisfaction for at least one individual. For example, consider point Z off the contract curve. At this point consumer A owns OX A of commodity x and OYA of commodity y, with the remaining quantities (XAX and YAY) owned by consumer B. With this distribution of the two commodities consumer A is on indifference curve A4 while consumer Bison indifference curve B 5 • We will show that point Z represents a suboptimal distribution of x andy, because if A and B exchange some of the quantities of the two commodities so as to move to any point on the section WR of the contract curve at least one (and probably both) of them will be better off (on a higher indifference curve) without the other being worse off.

X 3 ) resulting from the fall in its price. Thus the revealed preference axiom and the implied consistency of choice open a direct way to the derivation of the demand curve: as price falls, more of x is purchased. Derivation of the indifference curves Although not needed for establishing the law of demand, indifference curves can be derived and their convexity proved by the revealed preference hypothesis. The indifference-curves approach requires less information than the neoclassical cardinal utility theory.

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Modern Microeconomics by A. Koutsoyiannis (auth.)

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