Microeconomics

Thèmes abordés

Microecomics - Demand - Consumer - Producer

Résumé du document

Consider two individuals (call them A and B) which reflect the amount of two goods (X and Y) they consume. Consider that there are only these two properties to simplify the world in which we place ourselves. In general, we can say that two individuals will not consume the same amount of X and Y. Why? First, because they do not necessarily have the same tastes. In short, we see that the demand for a good depends not only on price but also the income and preferences.

What role does the income in the application? In fact, you can buy the two properties as you want, as long as the expenses that it represents does not exceed the income. In other words, income acts as a constraint on the amount of the two goods that will be consumed. As for taste-preferences-are represented by the utility function: when you choose the quantity of each item that will consume, it is done so as to be as satisfied as possible.

Extraits

[...] What role does the income in the application? In fact, you can buy the two properties as you want, as long as the expenses that it represents does not exceed the income. In other words, income acts as a constraint on the amount of the two goods that will be consumed. As for taste-preferences-are represented by the utility function: when you choose the quantity of each item that will consume, it is done so as to be as satisfied as possible. [...]

[...] Then comes a price change of one of the two goods. Suddenly, the individual consumes an additional quantity of two goods. The overall effect is the passage of the initial equilibrium at point of final balance. Note that what we consider only a change in the price of a good and that we keep a constant nominal income. Therefore, when you go from start point to end point, the real income varies. Thus, the overall effect on X (respectively is the quantity of X (respectively consumed at the point of equilibrium where the final amount initially consumed is subtracted. [...]

[...] Graphically it is on one of two axes. How to find the path of expansion (that 'right-income consumer' also known as) a consumer? As the demands of an individual depends on his income, an increase in this income will induce a change in the quantities of each item requested by the individual. For example, suppose that initially a person consumes twice as much X as it may well be that if you triple his income, it will consume more than twice as much X as Y (or vice versa of course). [...]

[...] The slope of the indifference curve is the TMS ratio of marginal utilities). The slope of the budget is considered the same as the slope of the final budget ratio of the final price). In short, the intermediate point, relative marginal utility ratio = final price. and each provide an equation. These two equations must be satisfied simultaneously to the point that we seek the system of two equations with two unknowns are solved, and voila. In short, Slutsky and Hicks agree on what the overall effect. [...]

[...] There are two different conceptions of what a 'real income constant': the Slutsky and that of Hicks. How, after a price change, decompose the overall effect into substitution and income effect according Slutsky effect? According to Slutsky, following a change in relative prices, the real income of the consumer is kept constant if nominal income is the new price ratio, the minimum income allowing him to buy the basket of goods consumed before the change price (it is therefore a notion of 'purchasing power'). [...]