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5 DEMAND The consumer’s demand functions: x1=x1(p1, p2, m) x2=x2(p1, p2, m) How does a consumer’s demand change as his income changes? How does demand change when price of a good changes? Comparative statics (比较静态) : Statics ---- not concerned with any adjustment process involved in moving from one choice to another. Comparative ---- to compare two situations: before and after the change in the economic environment. Comparison of demands under different prices Comparison of demands under different income levels Income Offer Curves and Engel Curves Hold the prices fixed, and examine only the change in demand due to the income change. An increase in income shifts the budget line in a parallel fashion. Income offer curve（收入提供曲线）: the bundles of goods that are demanded at the different levels of income. Good 2 income offer curve O good 1 Engel curve（恩格尔曲线）: a graph of the demand for one of the goods as a function of income, with all prices being held constant. Income Engel curve m( m( O x1( x1( good 1 Some Examples Perfect Substitutes u(x1, x2) = x1 + x2 Good 2 Income offer curve O good 1 Income offer curve: x2 = 0, if p1 p2 x1 = 0, if p2 p1 Engle curve for good 1: x1 = m/p1, if p1 p2 x1 = 0, if p2 p1 Income Engel curve (p1 p2) O good 1 Perfect Complements u(x1, x2) = min {x1, x2} Good 2 O Good 1 Income offer curve: x1 = x2 Engle curve for good 1: Cobb-Douglas Preferences u(x1, x2) =, Income offer curve: = or x2=x1 Engle curve for good 1: x1= . Normal and Inferior Goods Normal good (正常商品): The demand for it would increase wh