Slide 1Slide 2Slide 3Slide 4Slide 5Slide 6Slide 7Slide 8Slide 9Slide 10Slide 11Slide 12Slide 13Slide 14Slide 15Slide 16Slide 17Slide 18Slide 19Jeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedChapter 5Applying Consumer TheoryJeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedFigure 5.01 Deriving an Individual’s Demand Curve 4.35.212.02.812.06.04.026.7044.5 58.9L1 (pb = $12)pb, $ per unitL2 (pb = $6) L3 ( pb = $4)26.70 44.5 58.9e3e2e1E3E2E1I1I2I3Beer, Gallons per yearBeer, Gallons per yearD1, Demand for beerPrice-consumption curveWine, Gallons per year(a) Indifference Curves and Budget Constraints(b) Demand CurveJeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedFigure 5.02 Effect of a Budget Increase on an Individual’s Demand Curveper yearIncome-consumptioncurveEngel curve for beer02.84.87.149.138.226.7 Beer, Gallons per year012049.138.226.7 Beer, Gallons per year49.138.226.7 Beer, Gallons per yearI2I3I1(a) Indifference Curves and Budget ConstraintsPrice of beer,$ per unit(b) Demand CurvesY, Budget(c) Engel Curvee2e3E3E1E2Y1 = $419Y2 = $628Y3 = $837L3L2L1e1D1D2D3E1*E2*E3*Wine, GallonsJeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedSolved Problem 5.1Y2/p*Y1/p*Y1 = pq1Y2 = pq2q1 = Y1/p q2 = Y2/pL1Y, Incomeper weekL2e2e1E2E1p1I1I2q, Cans of Cragmontper weekq1q2q, Cans of Cragmontper week*, Cans of Canada Dryper week(a) Indifference Curves and Budget Constraints(b) Engel CurveCragmont Engel curveqJeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedFigure 5.03 Income-Consumption Curves and Income ElasticitiesHousing, Square feetper yearFood, Pounds per yearFood normal,housing normalFood inferior,housing normalFood normal,housing inferiorbceaL1L2IICC2ICC1ICC3Jeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedFigure 5.04 A Good That Is Both Inferior and NormalY2Y1Y1Y2Y3Y3L1Y, IncomeL2L3e2e3e1E2E3E1I1I2I3Hamburger per yearIncome-consumption curveHamburger per yearAll other goodsper year(a) Indifference Curves and Budget Constraints(b) Engel CurveEngel curveJeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedFigure 5.05 Substitution and Income Effects with Normal GoodsWine, Gallonsper year12.05.50 58.926.7 30.6SubstitutioneffectTotal effectIncome effectBeer, Gallons per yearI2I1L*L2L1e2e1e*Jeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedFigure 5.06 Giffen GoodBasketball, Tickets per yearMovies, Tickets per yearL1L*Total effectIncome effectSubstitution effectL2e1e2e*I1I2Jeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedFigure 5.07 The Consumer Price IndexC2C1C, Units of clothingper yeare2e1I1L1e*L*L2I2F, Units of food per yearY2*/p2FY1/p1FY1/ p1CY*/p2CF2F1Y2/p2FY2/p2CJeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedTable 5.01 Cost-of-Living AdjustmentsJeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedFigure 5.08 Demand for LeisureY, Goodsper dayTime constraintH2 = 12 H1 = 824 0N2 = 12 N1 = 160 24H, Work hours per dayN, Leisure hours per dayH2 = 12 H1 = 8N2 = 12 N1 = 160H, Work hours per dayN, Leisure hours per dayDemand for leisureI2I11–w2L1L2(a) Indifference Curves and Constraintsw, Wageper hour(b) Demand Curve–w11e2Y2Y1w1w2e1E2E1Jeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedSolved Problem 5.3aY, Goodsper day(a) Leisure NormalTime constraintH2H124 0H, Work hours per dayL2I2I1L1Y*e2e1Jeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedSolved Problem 5.3bH3Y, Goodsper day(b) Leisure InferiorTime constraintH124 0H, Work hours per dayL2I1L1Y*e1I3e3Jeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedFigure 5.09 Supply Curve of Laborw, Wageper hour(a) Leisure DemandDemand for leisurew1w216120N, Leisure hours per dayE1E2w, Wageper hour(b) Labor SupplySupply of work hoursw1w28 120H, Work hours per daye2e1Jeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedFigure 5.10 Income and Substitution Effects of a Wage ChangeY, Goodsper dayTime constraintH2H* H124 0N2N* N10 24Substitution effectIncome effectTotal effectH, Work hours per dayN, Leisure hours per dayI2I1L2L*L1e2e1e*Jeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedApplication Leisure-Income Choices of Textile WorkersY, Goodsper week55 2545 7542.457.629.570.542.957.1H, Work hours per weekN, Leisure hours per weekI2I1L2L*L191.1820088.690e1e2e*Jeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedFigure 5.11a Labor Supply Curve That Slopes Upward and Then Bends BackwardY, Goodsper day(a) Labor-Leisure ChoiceTime constraintH2H3H124 0H, Work hours per dayL2I2I3I1L3L1e2e1e3Jeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedFigure 5.11b Labor Supply Curve That Slopes Upward and Then Bends BackwardE1E3E2w, Wageper hour(b) Supply Curve of LaborSupply curve of laborH2H3H1240H, Work hours per dayJeffrey M. Perloff, Microeconomics, © 2001 Addison Wesley Longman, Inc., All Rights ReservedFigure 5.12 Relationship of Tax Revenue to Tax Rates600800400200Tax revenue, $500* = 79 100, Marginal tax rate, %Tax
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