ECO100Y5 Chapter Notes - Chapter 5: Economic Surplus, Demand Curve, Normal Good
CHAPTER -CONSUMER BEHAVIOUR
SUMMARY
• A utility-maximizing consumer allocates expenditures so that
the marginal utility obtained from the last dollar spent on each
product is equal.
• A rise in the price of a product (with all other determinants of
demand held con- stant) leads each utility-maximizing
consumer to reduce the quantity demanded of the product.
• The substitution effect increases the quantity demanded of a
product whose price has fallen and reduces the quantity
demanded of a product whose price has risen.
• The income effect leads consumers to buy more of a product
whose price has fallen, provided that the product is a normal
good.
• Because of the combined operation of the income and
substitution effects, the demand curve for any normal good will
be negatively sloped. A fall in price will increase the quantity
demanded.
• For any unit consumed, consumer surplus is the difference
between the maximum amount the consumer is willing to pay
for that unit and the price the consumer actually pays.
• The market demand curve shows the valuation that consumers
place on each unit of the product. For any given quantity, the
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ECO100Y5 Full Course Notes
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