1. Theory of Consumer Choice and Elasticity Chapter #2, 3 EDWARD BAHAW - Economic Principles and Their Application to Business (ABE)
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3. Consumer Demand Curve EDWARD BAHAW - Economic Principles and Their Application to Business (ABE) D D P ($) $100 $50 12 6 Quantity of Cinema Tickets
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11. Choice based on Marginal Utility per Dollar EDWARD BAHAW - Economic Principles and Their Application to Business (ABE) Quantity of hot dogs Total Utility Marginal Utility Quantity of Hamburgers Total Utility Marginal Utility 0 0 0 0 1 250 250 1 300 300 2 450 200 2 570 270 3 640 190 3 820 250 4 790 150 4 1060 240 5 900 110 5 1290 230
12. Choice based on Marginal Utility per Dollar The consumer achieves equilibrium in consumption when 4 hot dogs and 1 hamburger are consumed. EDWARD BAHAW - Economic Principles and Their Application to Business (ABE) Quantity of hot dogs Marginal Utility/Price Quantity of hamburgers Marginal Utility/Price 0 0 1 25 1 15 2 20 2 13.5 3 19 3 12.5 4 15 4 12 5 11 5 11.5
13. Choice based on Marginal Utility per Dollar If the price of hamburgers is lowered to $12, then the new marginal utility to price ratios would be as shown in the table. This shows that the consumer achieves equilibrium when 2 hot dogs and 4 hamburgers are consumed. EDWARD BAHAW - Economic Principles and Their Application to Business (ABE) Quantity of hot dog sandwiches Marginal Utility/Price Quantity of hamburgers sandwiches Marginal Utility/Price 0 0 1 25 1 23.1 2 20 2 22.5 3 19 3 20.8 4 15 4 20 5 11 5 19.2
14. First Law of Demand Therefore as the price of hamburgers is lowered from $20 to $12, the quantity demanded increases from 1 unit to 4 units. This depicts the inverse relationship between the price of a good and the quantity demanded as represented by the demand curve in the figure. EDWARD BAHAW - Economic Principles and Their Application to Business (ABE) Quantity of Hamburgers Price 1 4 20 10 D D
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18. Increase in Price (Contraction) EDWARD BAHAW - Economic Principles and Their Application to Business (ABE) D D A B P 2 P 1 P Q 1 Q 2 Q
19. Decrease in Price (Extension) EDWARD BAHAW - Economic Principles and Their Application to Business (ABE) P D D X Y P 2 P 1 Q 1 Q 2 Q Q
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22. Increase in demand EDWARD BAHAW - Economic Principles and Their Application to Business (ABE) P ($) D 1 D 1 Quantity D 2 D 2 O
23. Decrease in demand EDWARD BAHAW - Economic Principles and Their Application to Business (ABE) D 2 D 2 D 1 D 1 P ($) Quantity O
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25. Price Elasticity of Demand (PED) EDWARD BAHAW - Economic Principles and Their Application to Business (ABE)
26. Fill in the blank columns of the table EDWARD BAHAW - Economic Principles and Their Application to Business (ABE) P 1 Q 1 P 2 Q 2 % ΔP % ΔQ P.E.D. Category $100 900 $90 1350 Elastic $100 900 $90 990 Unitary $100 900 $90 909 Inelastic
27. Fill in the blank columns of the table EDWARD BAHAW - Economic Principles and Their Application to Business (ABE) P 1 Q 1 TR 1 P 2 Q 2 TR 2 P.E.D. Category $100 900 $90 1350 Elastic $100 900 $90 990 Unitary $100 900 $90 909 Inelastic
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31. Income Elasticity of Demand (YED) EDWARD BAHAW - Economic Principles and Their Application to Business (ABE)
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35. Cross Elasticity of Demand (XED) EDWARD BAHAW - Economic Principles and Their Application to Business (ABE)