lecture and text notes

Chapter 4 Consumers maximize satisfaction or utility Consumer Equilibrium Refers to the condition where in the slope of the budget line and the slope of the indifference curve are equal Marginal utilities= money spent on goods Changes in Equilibrium Demands influenced by consumer income and all prices Changes in prices and income = changes in consumer demand for goods and services Ceteris Paribus All other things constant Effects on demand of changes in income and money spent Substitution Effect Occurs when the price of goods declines relative to the price of another good Income Effect Effect of a decline in the price means that the consumer can buy more Demand Curve Amount of commoditity consumers are willing and able to purchase at each possible price during a specific time and market NOTE: time and market change demand Demand shifts when changes in price and income occur 2 Major Shifts in Demand Change in the Consumers disposable income Changes in the prices of other goods and services Change in Income Nominal Goods Goods for which a rise/ fall in income will lead to increased/ decreased consumption Ex) gasoline Inferior Goods Goods for which rise/ fall in income will lead to decreased/ increased consumption Engel Curve Schedule that shows how many units of a good the consumer will purchase at different income levels All other factors constant Market Demand Curve Horizontal summation of the two individual demand curves Interpretation of Market Demand Business, consumers, and policy makers all have an interest in market demand Change in Quantity Demanded Refers to change in the quantity observed on the horizontal axis associated with a movement increase or decrease the demand curve as oppose to a shift in demand curve Change in Demand Shift in the demand curve generally caused by changes in the prices of compliments or substitutes, income, tastes, preferences Ch 4 to be continued