ECO204Y5 Chapter Notes - Chapter 4.1 to 4.4: Demand Curve, Budget Constraint, Economic Surplus
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I(cid:374)dividual de(cid:373)a(cid:374)d; i(cid:374)(cid:272)o(cid:373)e & su(cid:271)stitutio(cid:374) effe(cid:272)ts; market de(cid:373)a(cid:374)d; co(cid:374)su(cid:373)er surplus. This section shows how the demand curve of an individual consumer is constructed from the consumption choices that a person makes when faced with a budget constraint. A reduction in the price of food, with income and the price of clothing fixed, causes this consumer to choose a different market basket. They go from a to b to d, with each decrease in pf. Price changes cause a movement on the demand curve. The line connecting the 3 points is known as the price- consumption curve, and it"s a curve that traces the utility- maximizing combinations of 2 goods as the price of one changes. Price consumption curve shows that as pf falls, f increases. It"s the curve relating the quantity of a good that a single consumer will buy to the good"s price. As we move down the demand curve, the mrs falls.
