Individuals make decisions about what to buy and when. But when we talk about the economy every day, we are often analyzing what millions of people are doing and deciding to do at different times. In order to think about this problem, we need to move from the micro to the macro and use our model of individual behavior to generate predictions about what will happen to total demand when the price changes.
Vintage food stamps. Image courtesy of Brian on Flickr.
Keywords: Constrained budget; price elasticity; Engel curves; income effect; substitution effect.
Read the recitation notes, which cover new content that adds to and supplements the material covered in lecture.
Before watching the lecture video, read the course textbook for an introduction to the material covered in this session:
- [R&T] Chapter 7, "The Analysis of Consumer Choice." Section 7.2.3.
- [Perloff] Chapter 5, "Applying Consumer Theory." (optional)
View Full Video
- Lecture 6: Deriving Demand Curves (00:47:22)
- Transcript - PDF (English-US)
- Caption - SRT (English-US)
Lecture 6: Deriving Demand Curves
View by Chapter
- Application of Budget Constraints: Food Stamps (0:15:36)
- Drawing Demand Curves (0:07:45)
- Drawing Engel Curves (0:03:07)
- The Income Elasticity of Demand (0:06:33)
- Substitution and Income Effects (0:14:16)
Application of Budget Constraints: Food Stamps
Drawing Demand Curves
Drawing Engel Curves
The Income Elasticity of Demand
Substitution and Income Effects
This concept quiz covers key vocabulary terms and also tests your intuitive understanding of the material covered in this session. Complete this quiz before moving on to the next session to make sure you understand the concepts required to solve the mathematical and graphical problems that are the basis of this course.
These optional resources are provided for students that wish to explore this topic more fully.
Textbook Study Materials
See the [Perloff] chapter for topics covered, as well as quizzes, applications, and other related resources.
Other OCW and OER Content
|"The Expenditure Function: An Application to the Economics of Food Stamps." Lec #5 in 14.03 Microeconomic Theory and Public Policy, Fall 2010.||MIT OpenCourseWare||Alternative notes with an advanced theoretical approach.|