Consumers in the Marketplace

Steven E. Landsburg

Chapter 4 in Price Theory and Applications, 2024, pp 101-144 from World Scientific Publishing Co. Pte. Ltd.

Abstract: In Chapter 1, we told a simple but powerful story about demand, summarized in a single phrase: When the price goes up, the quantity demanded goes down.In Chapter 3, we told a far more sophisticated story about demand: When the price goes up, the budget line pivots inward and the consumer moves from one tangency to another.Our next task is to understand how these stories fit together. Do they always make the same predictions? If so, why? If not, which should we believe?This chapter tackles those questions. We use the indifference curves and budget lines of Chapter 3 to reach a deeper understanding of the law of demand from Chapter 1. Along the way, we’ll learn a lot about how consumers respond to changing market conditions. It turns out that income changes are a little easier to analyze than price changes, so we start by studying income changes in Section 4.1. In Sections 4.2 and 4.3, we turn to the effects of price changes. Finally, in Section 4.4, we talk about some numerical measures of all these effects.

Keywords: Microeconomics; Price Theory; Supply and Demand; Demand Curve; Adverse Selection; Budget Line; Indifference Curve; Common Property; Competition; Competitive Industry; Constant-cost Industry; Consumer Surplus; Producer Surplus; Social Gain; Social Welfare; Efficiency Criterion; Economic Efficiency; Cost; Price; Deadweight Loss; Price Ceiling; Tariff; Rationing; Quotas; Equimarginal Principle; Price Discrimination; Monopoly; Two-part Pricing; Two-part Tariff; Fishery; Collusion; Income Effect; Substitution Effect; Normal Good; Inferior Good; Giffen Good; Externality; Property Right; Coase Theorem; Transactions Cost; Law of Demand; Marginal Cost; Marginal Revenue; Marginal Value; Market Failure; Moral Hazard; Nash Equilibrium; Normative Criterion; Positive Economics; Oligopoly; Hayek; Social Cost; Economics of Information; Sales Tax (search for similar items in EconPapers)
JEL-codes: D D04 D4 L11 (search for similar items in EconPapers)
Date: 2024
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