Indifference Curve Analysis

Any change that lowers the quantity that buyers wish to purchase at any given price shifts the demand curve to the left.

Hypothetically, the ideal price that results in producer and consumer attaining the greatest level of shared benefit arises at the price where the supply and demand lines intersect. Deviations from this fact results in a

When A is MRS > Px /Py and when B is MRS < Px /Py. When it reaches A(B) the consumer is will probably be willing drop Y(X) in order to get more X(Y). The amount to drop is at the market.

We have to figure out what a “typical” consumer buys. Imagine a shopping cart – you fill it up with items that a typical consumer will purchase.

Changes in price can affect buyers' purchasing decisions; this effect is called the income effect.

Consumers use cost-benefit analysis in order to maximize utility. They do this when they are faced with a decision to make. They list the costs of the product, make a list of pros and cons for the product, and they compare costs and benefits to other locations that have this good and see which is larger. Consumers make different decisions when using this process because some goods have a larger pros list than cons and vice versa.

So when demand increases and a supply doesn’t change, a shift in price will happen. This shift will move to the right causing a new Equilibrium.

The aggregate demand curve shows the relationship between the aggregate price level and (the) aggregate:

To summarize the concept, when the price of a product falls, the quantity demanded of the product will increase, and conversely, when the price of a product increases, the quantity demanded of the product will decrease, where all other relevant factors are constant. (Glen, 2012).

Consumers are utility maximisers, they maximize their utility by taking a decision when they buy something. They spend money on those things which are cheaper as well as qualitative for them. As shown in the fig.1, the budget line illustrates the limits of a consumer’s choices. The area left side the budget line is affordable by consumer.

The Lorenz is a curve that demonstrates the variation of the distribution of income from a level of perfect equality. An example of such the Lorenz curve is presented in Figure A-1.

decrease. This is represented by a leftward shift of the demand curve from D1 to

There are many determinants that cause the change in demand of a product (Sayre & Morris, 2015). One example of determinants of change in demand is found in an article on Panera Bread. Taylor explains how Panera Bread competes with its competitors in her Business Insider article (2016). In Taylor’s article, examples of inferior products, substitute products and complementary products are given (2016). Bread is an inferior product, which means the demand of bread goes down with increased income (Morris & Sayre, 2015).

Understanding the fundamental concepts of economics allows us to analyze laws that have a direct bearing on the economy. These laws and theories are essentially the backbone of how economics is used and studied. The law of demand can be expressed by stating that as long as all other factors remain constant, as prices rise, the quantity of demand for that product falls. Conversely, as the price falls, the quantity of demand for that product rises (Colander, 2006, p 91). Price is the tool used that controls how much consumers want based on how much they demand. At any given price a certain quantity of a product is demanded by consumers. As the price decreases, the quantity of the products demanded will increase. This indicates that more individuals demand the good or service as the price is lowered. This can be illustrated using the demand curve. The demand curve is a downward sloping line that illustrates the inversely related relationship of price and quantity demanded.

Elasticity of demand is shown when the demands for a service or goods vary according to the price. Cross-price elasticity is shown by a change in the demand for an item relative to the change in the price of another. For substitutes, when there is a price increase of an item, there is an increase in the demand for another item. When viewing complements, if there is an increase in the price of an item, the demand for another item decreases. Income elasticity is shown when there is a change in the demand for a good relative to a change in income. This concept is shown in how people will change their spending habits when their income levels change. For