4: Compartive Statics
- Page ID
- 58449
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- 4.4: More Practice with Deriving Demand
- This section derives the demand curve from two different utility functions, quasilinear preferences and perfect complements, to provide practice deriving demand curves. Nothing new here, just practice applying the tools, techniques, and concepts of the economic way of thinking.
- 4.5: Giffen Goods
- In introductory economics courses around the world, demand is always drawn downward sloping so that as price rises, ceteris paribus, quantity demanded falls. Economists have long been intrigued, however, by a perplexing possibility: quantity demanded rising as price rises. An upward sloping demand curve! Can this happen? Yes, but it is quite rare and it took decades to figure it out.
- 4.6: Income and Substitution Effects
- Without a doubt, the demand curve is the most important idea in the Theory of Consumer Behavior. This section remains focused on the demand curve, extending the analysis of the consumer’s optimal response to a change in price. The core concept is that the total effect on quantity demanded (given by the demand curve) for a given change in price can be broken down into two separate effects, called income and substitution effects.