Figure 6A-7 Derivation of a Consumer’s Demand Curve
6A.4 Deriving the Consumer’s Demand
Curve
What happens to the consumer’s demand for some product, say, gasoline,
as the price of that product changes, holding constant the prices of all
other goods?
If there were only two products purchased by consumers, we could derive
a demand curve for one of the products from the price-consumption line
like the one we showed for Hugh in Figure 6A-6. When there are many
products, however, a change in the price of one product generally causes
substitution toward (or away from) all other goods. Thus, we would like
to have a simple way of representing the individual’s preferences in a
world of many products.
In part (i) of Figure 6A-7 , a new type of indifference map is plotted in
which litres of gasoline per month are measured on the horizontal axis
and the value of all other goods consumed per month is plotted on the
vertical axis. We have in effect used “everything but gasoline” as the
second product. The indifference curves in this figure then show the rate
at which the consumer is prepared to substitute gasoline for money
(which allows him to buy all other goods) at each level of consumption of
gasoline and of all other goods.