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    Chapter-4: Individual and Market Demand: Managerial Economics (Bus-525) Course Convener: Dr. Tamgid Ahmed Chowdhury

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    Khaled Bin Shahabuddin Shagar
    The document discusses individual and market demand. It covers topics such as deriving individual demand curves using indifference curves, the price effect, income effect and substitution effect for normal, inferior and Giffen goods. It also discusses how a market demand curve can be derived from individual demand schedules and analyzing consumer and producer surplus. The impact of taxes and how they can be used for socially desirable outcomes is explained. Consumer surplus, producer surplus, and deadweight loss due to taxes are also defined.

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    Chapter-4: Individual and Market Demand: Managerial Economics (Bus-525) Course Convener: Dr. Tamgid Ahmed Chowdhury

    Uploaded by

    Khaled Bin Shahabuddin Shagar
    19 views16 pages
    The document discusses individual and market demand. It covers topics such as deriving individual demand curves using indifference curves, the price effect, income effect and substitution effect for normal, inferior and Giffen goods. It also discusses how a market demand curve can be derived from individual demand schedules and analyzing consumer and producer surplus. The impact of taxes and how they can be used for socially desirable outcomes is explained. Consumer surplus, producer surplus, and deadweight loss due to taxes are also defined.

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    The document discusses individual and market demand. It covers topics such as deriving individual demand curves using indifference curves, the price effect, income effect and substitution effect for normal, inferior and Giffen goods. It also discusses how a market demand curve can be derived from individual demand schedules and analyzing consumer and producer surplus. The impact of taxes and how they can be used for socially desirable outcomes is explained. Consumer surplus, producer surplus, and deadweight loss due to taxes are also defined.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    19 views16 pages

    Chapter-4: Individual and Market Demand: Managerial Economics (Bus-525) Course Convener: Dr. Tamgid Ahmed Chowdhury

    Uploaded by

    Khaled Bin Shahabuddin Shagar
    The document discusses individual and market demand. It covers topics such as deriving individual demand curves using indifference curves, the price effect, income effect and substitution effect for normal, inferior and Giffen goods. It also discusses how a market demand curve can be derived from individual demand schedules and analyzing consumer and producer surplus. The impact of taxes and how they can be used for socially desirable outcomes is explained. Consumer surplus, producer surplus, and deadweight loss due to taxes are also defined.

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    You are on page 1of 16

    CHAPTER-4: INDIVIDUAL

    AND MARKET DEMAND


    MANAGERIAL ECONOMICS (BUS-525)

    COURSE CONVENER:
    DR. TAMGID AHMED CHOWDHURY
    CHAPTER OUTLINE
     We will learn about:
     Individual demand and derivation of demand curve by

    Economics for Managers


    using IC approach
     Price effect, income effect and substitution effect for
    normal, inferior and giffen goods
     Impact of tax on socially desirable consequences

     Market demand curve from individual demand schedule

     Consumer and producer surplus analysis

    2
    PRICE CHANGE AND
    INDIVIDUAL DEMAND CURVE
     Effect of price change:
    When price of one
    product decreases, that

    Economics for Managers


    will rotate the budget
    line, hence the demand
    curve of the product can
    be drawn.
     Price consumption curve:
    curve tracking the utility
    maximizing
    combinations.
    3
    INCOME CHANGE AND
    CONSUMER’S RESPONSE
     If income increases
    with price constant,
    the consumers will

    Economics for Managers


    demand more of a
    normal product

    4
    INCOME AND SUBSTITUTION EFFECT
     When price of a product declines, it has two important
    effects

    Economics for Managers


    1) People can get that product at a cheaper price thus the
    ability or purchasing power rises
    2) People may not increase the consumption of the
    product to maximum thus there is an income gain.

    5
    PRICE, INCOME AND SUBSTITUTION
    EFFECT: NORMAL GOODS
     Substitution effect: It shows
    the change in consumption
    of a product (whose price

    Economics for Managers


    has changed) while keeping
    the utility constant. For
    example, even if the
    consumer can consume F1F2
    extra, they will actually
    consume F2E. Thus EF2 is
    income gain.

    6
    INCOME AND SUBSTITUTION EFFECT
    FROM INFERIOR GOODS

     For inferior
    goods, income

    Economics for Managers


    effect is always
    negative as can
    be seen in the
    diagram.

    7
    TRY YOURSELF: THE CASE OF GIFFEN
    GOOD

    Economics for Managers


     For giffen goods, price effect is positive which means
    traditional demand rule is not applicable.

    8
    Cash vs. a Price Subsidy: Lessons

     A cash transfer and an equal-cost price subsidy have the same


    income effect, but the price subsidy also has a price effect.

     It follows that
     the cash transfer leads to higher utility, and
     the price subsidy leads to more consumption of the
    subsidized good.
    A Price Subsidy and an Equal-Cost Cash Grant

    Budget Line with


    Cash Grant

    Tangency Point
    Clothing with Cash Grant
    Tangency Point
    with Price Subsidy

    I3
    I2 Budget Line with Price
    Subsidy
    I1
    F1 F3 F2
    Food
    Cost of Both Programs
    (in Units of Food)
    Food Stamps

    Are poor people better off receiving food


    stamps or a comparable amount of cash?
    Food Stamps Versus Cash

    All other goods


    per month
    Budget line with cash
    Y + 100
    f

    C e
    Y I3
    d I2

    I1

    B
    Budget line with
    food stamps
    A Original
    budget line

    0 100 Y Y + 100
    Food per month
    COMPARE DISCOUNT CARD AND GIFT CARD

    INCOME

    Economics for Managers


    C

    A B IC3

    IC2

    IC1
    BL1 BL3 BL2

    0 Q1 Q3 Q2 Good X
    13
    COMPARE DISCOUNT CARD, GIFT CARD AND CASH
    GIFT

    INCOME
    D
    IC4

    Economics for Managers


    IC3

    A B IC2

    IC1
    BL1 BL3 BL2

    0 Q1 Q3 Q2 Good X
    14
    TAX ON GASOLINE FOR SOCIAL CAUSE

     Tax on gasoline has been imposed to reduce pollution in


    the society. But after that government has given some

    Economics for Managers


    rebate or cash transfer to the citizen. Show the impact in
    diagram

    15
    MARKET DEMAND CURVE
     How to derive market demand curve from the demand of
    the individual.

    Economics for Managers


     Consumer surplus: It is the difference between what
    consumers are willing to pay and what they are actually
    paying.
     Producer surplus: It is the difference between the
    production cost and the revenue earned.

     Show the change in consumer surplus, producer surplus


    and dead weighted loss if a tax is imposed on a product.
     Discuss about the revenue maximization rule of elasticity 16

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