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Chapter 4

Chapter 4

Economics for Management Studies
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Chapter 4 – Individual and Market Demand 11-10-28 9:21 PM
The Individual Demand Curve
Price- Consumption Curve curve tracing the utility-maximizing
combinations of two good as the price of one changes
As the price of food falls, attainable utility increases and the
consumer buys more food
o What happens to clothing? It can either decrease or increase
because the decrease/increase in the price of food has

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increased/decreased the consumer’s ability to purchase both
o Movement along the demand curve (point by point)
Individual Demand – curve relating the quantity of a good that a single
consumer will buy to its price
2 important properties:
o The level of utility can be attained changes as we move along
the curve (the lower the price of a product, the higher the
level of utility more purchasing power)
o At every point on the demand curve, the consumer is
maximizing utility by satisfying the condition that the MRS of
food and for clothing, equals the radio of the prices of food
and clothing.
MRS varies along the individual’s demand curve – tells us something about
how the consumers value the consumption of a good or service
Income Changes
Income-consumption curve curve tracing the utility- maximizing
combinations of two goods as a consumer’s income changes (PRICE HELD
Shift in the demand curve itself (increase in income, shift right)

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Normal versus Inferior Goods
Normal Goods (consumption rises as income rises):
Income consumption curve has a positive slope QD increases
with income
o Income elasticity of demand is positive
o Greater shifts to the right, greater the income elasticity
Inferior Goods (consumption falls as income rises):
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