ppt课件-derivationofthedemandcurve-stanforduniversity.pptVIP

Preview of 4 Coming Attractions Today: Derivation of the Demand Curve Consumers (Buyers) Next: Derivation of the Supply Curve Firms (Sellers) Later: Double Auction Market Buyers and and sellers come together Still later: Competitive Equilibrium Model Why study the derivation of the demand curve? Helps explain why a competitive market works well. Helps determine the position of the demand curve and the sensitivity of quantity demanded to price. A brief digression on elasticity Elasticity is a measure of how sensitive one variable (e.g. quantity demanded) is to another variable (e.g. price). Definition: the price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price e = (%? Q)/(%?P) Where we are going Start with an individual consumer maybe you, maybe me, but could be anyone Derive demand curve for that individual focus on marginal utility or marginal benefit Add up demand curves for many such individuals to get market demand curve Assumption about consumer behavior General economic principle People make purposeful choices with limited resources When applied to the behavior of consumers People maximize utility subject to a budget constraint Utility: a numerical indicator of preferences Marginal Utility Diminishing Marginal Utility The “willingness to pay” approach * Marginal conditions for utility maximization Ratio of marginal utilities equals ratio of prices for any two goods (MUG/MUB) = (PG/PB) Explanation of Diamond Water Paradox First pointed out by Adam Smith *