【正文】 Clean Air ?Air is free in the sense that we don’t pay to breathe it ?The Clean Air Act was amended in 1970 ?Question: Were the benefits of cleaning up the air worth the costs? 169。2020 Pearson Education, Inc. Chapter 4 54 Consumer Surplus ?The stepladder demand curve can be converted into a straightline demand curve by making the units of the good smaller ?Consumer surplus is the area under the demand curve and above the price 169。2020 Pearson Education, Inc. Chapter 4 50 Consumer Surplus ?Consumers buy goods because it makes them better off ?Consumer Surplus measures how much better off they are 169。2020 Pearson Education, Inc. Chapter 4 46 The Aggregate Demand for Wheat ?The demand for US wheat is prised of two ponents: ?Domestic demand ?Export demand ?Total demand for wheat can be obtained by aggregating these two demands 169。2020 Pearson Education, Inc. Chapter 4 42 Price Elasticity of Demand ?Inelastic Demand ?Ep is less than 1 in absolute value ?Quantity demanded is relatively unresponsive to a change in price ?|%?Q| |%?P| ?Total expenditure (P*Q) increases when price increases 169。2020 Pearson Education, Inc. Chapter 4 38 Summing to Obtain a Market Demand Curve Quantity 1 2 3 4 Price 0 5 5 10 15 20 25 30 DB DC Market Demand DA The market demand curve is obtained by summing the consumer’s demand curves 169。2020 Pearson Education, Inc. Chapter 4 34 Food (units per month) O R Clothing (units per month) F1 S F2 T A U1 E Substitution Effect D Total Effect Since food is an inferior good, the ine effect is negative. However, the substitution effect is larger than the ine effect. B Ine Effect U2 Ine and Substitution Effects: Inferior Good 169。2020 Pearson Education, Inc. Chapter 4 30 Ine and Substitution Effects ?Substitution Effect ?The substitution effect is the change in an item’s consumption associated with a change in the price of the item, with the level of utility held constant ?When the price of an item declines, the substitution effect always leads to an increase in the quantity demanded of the good 169。 Complements ?If the price consumption curve is downwardsloping, the two goods are considered substitutes ?If the price consumption curve is upwardsloping, the two goods are considered plements ?They could be both 169。 Complements ?Two goods are considered plements if an increase (decrease) in the price of one leads to a decrease (increase) in the quantity demanded of the other ?Ex: gasoline and motor oil 169。2020 Pearson Education, Inc. Chapter 4 22 Annual US Household Consumer Expenditures 169。2020 Pearson Education, Inc. Chapter 4 18 An Inferior Good Hamburger (units per month) Steak (units per month) 30 U3 C IneConsumption Curve …but hamburger bees an inferior good when the ine consumption curve bends backward between B and C. 10 5 A U1 5 20 10 B U2 Both hamburger and steak behave as a normal good, between A and B... 169。2020 Pearson Education, Inc. Chapter 4 14 Effects of Ine Changes Food (units per month) Clothing (units per month) The Ine Consumption Curve traces out the utility maximizing market basket for each ine level 3 4 A U1 5 10 B U2 D 7 16 U3 Ine Consumption Curve 169。2020 Pearson Education, Inc. Chapter 4 10 Individual Demand ?Ine Changes ?Using the figures developed in the previous chapter, the impact of a change in the ine can be illustrated using indifference curves ?Changing ine, with prices fixed, causes consumers to change their market baskets 169。2020 Pearson Education, Inc. Chapter 4 7 Effect of a Price Change Demand Curve Individual Demand relates the quantity of a good that a consumer will buy to the price of that good. Food (units per month) Price of Food H E G $ 4 12 20 $ $.50 169。2020 Pearson Education, Inc. Chapter 4 3 Individual Demand ?Price Changes ? Using the figures developed in the previous chapter, the impact of a change in the price of food can be illustrated using indifference curves ? For each price change, we can determine how much of the good the individual would purchase given their budget lines and indifference curves 169。2020 Pearson Education, Inc. Chapter 4 2 Topics to be Discussed ?Individual Demand ?Ine and Substitution Effects ?Market Demand ?Consumer Surplus ?Network Externalities ?Empirical Estimation of Demand 169。2020 Pearson Education, Inc. Chapter 4 6 Effect of a Price Change ? By changing prices and showing what the consumer will purchase, we can create a demand schedule and demand curve for the individual ? From the previous example: Demand Schedule P Q $ 4 $ 12 $ 20 169。 MRS also fall 169。2020 Pearson Education, Inc. Chapter 4 13 Individual Demand ?Ine Changes ? An increase in ine shifts the budget line to the right, increasing consumption along the ineconsumption curve ? Simultaneously, the increase in ine shifts the demand curve to the right 169。2020 Pearson Education, Inc. Chapter 4 17 Individual Demand ?Ine Changes ?When the ineconsumption curve has a negative slope: ? The quantity demanded decreases with ine ? The ine elasticity of demand is negative ? The good is an inferior good 169。2020 Pearson Education, Inc. Chapter 4 21 Engel Curves Engel curves are backward bending for inferior goods. Inferior Normal Food (units per month) 30 10 Ine ($ per month) 20 4 8 12 16 169。2020 Pearson Education, Inc. Chapter 4 24 Substitutes amp。2020 Pearson Education, Inc. Chapter 4 26 Substitutes amp。2020 Pearson Education, Inc. Chapter 4 29 Ine and Substitution Effects ?Ine Effect ?Consumers experience an increase in real purchasing power when the price of