Microeconomics,, 16th Canadian Edition

For example, economists have observed that many consumers, when purchasing expensive products such as refrigerators and stoves, ...

not be taken as an indication that consumers are irrational, but rather that economists’ models are missing some important eleme ...

example, if one objective of government policy is to encourage individual workers to save more for their retirement, then presen ...

The Consumer’s Demand Curve To derive the consumer’s demand curve for a product, we need to ask what happens when there is a cha ...

marginal utility of juice rises sufficiently that Equation 6-2 is restored. In other words, her utility-maximizing response to a ...

Figure 6-2 Market and Individual Demand Curves Market Demand Curves If this is what each consumer does, it is also what all cons ...

The market demand curve is the horizontal sum of all the individual demand curves. At any given price, the quantity demanded by ...

6.2 Income and Substitution Effects of Price Changes We have just seen the relationship between the law of diminishing marginal ...

Let’s now explore these two separate effects in a little more detail. The Substitution Effect To isolate the effect of the chang ...

The substitution effect increases the quantity demanded of a product whose price has fallen and reduces the quantity demanded of ...

The Income Effect To examine the substitution effect, we reduced Tristan’s money income following the price reduction so that we ...

gasoline falls by 20 percent. For a consumer who was spending 5 percent of their income on gas, this is equivalent to a 1 percen ...

The Slope of the Demand Curve We have now divided Tristan’s response to a change in the price of ice cream into a substitution e ...

Figure 6-3 Income and Substitution Effects of a Price Change reduction in the price to In each case, the substitution effect (sh ...

all three demand curves. For all three goods, a price reduction to creates a substitution effect that increases quantity demande ...

reduction in real income leads households to purchase more of that good. Second, the good must take a large proportion of total ...

Two comments are in order. First, in a case where individuals appear to buy more goods at a higher price because of the high pri ...

6.3 Consumer Surplus We have now studied two alternative methods to explain why demand curves have a negative slope, the first u ...

Figure 6-4 Moira’s Consumer Surplus on Milk Consumption Figure 6-4. Our first question to Moira is, “If you were drinking no mil ...

amount in the dark shaded area. The total value she places on these six litres is the entire shaded area. Her consumer surplus i ...