0:23 Chapter theory of consumer behavior
0:27 topic derivation of demand curve of a
0:31 good using indifference curve. Welcome
0:35 students. Now we will derive the demand
0:38 curve for a good by using indifference
0:40 curve technique.
0:44 The starting point of this problem is
0:48 use the consumer's equilibrium diagram
0:50 and after that
0:52 derivation of the demand curve will take place.
0:55 place.
1:09 We take good Y here,
1:12 good X here.
1:20 The budget line
1:23 is given like this.
1:35 When price of good X falls, the budget
1:38 line will move to the right keeping this
1:40 point constant.
1:43 So we will
1:55 Let us say price of good X falls because
1:58 we are going to derive the demand curve
2:00 for good X.
2:03 Once the price of good X falls, the
2:06 budget line moves like this on the
2:08 horizontal axis where good X is
2:18 On the budget line A B let us say the
2:22 price of good X is P1.
2:25 You know budget line is written like
2:31 this. Initial budget line is P1X
2:36 + P2 Y gives you the income.
2:41 This is AB budget line.
2:43 When the budget line has moved to AB
2:49 dash due to falling price of X,
2:51 income is same but price of X has
2:54 fallen. Let us say P1 dash is the new
2:56 price of X.
3:06 and this is A B dash. Now
3:08 Now
3:11 find out the equilibrium point. The
3:13 equilibrium point on the first budget
3:18 line lies somewhere here.
3:20 That is the point of tangency between
3:22 the indifference curve and the budget line.
3:23 line.
3:28 Call it I1. The first indifference curve
3:32 and equilibrium point is point E where
3:36 the consumer is purchasing X one amount
3:38 of good X.
3:41 As a result of fall in price on the new
3:45 budget line AB dash the new equilibrium
3:48 point of the consumer will be somewhere
3:52 here where the point of tangency
3:55 lies. So the new point of tangency is E
3:59 dash and this indifference curve is
4:03 labeled as I2.
4:08 The new quantity demanded is X2.
4:13 Clearly due to falling price of X.
4:16 The budget line moves from AB to AB dash.
4:18 dash.
4:21 The equilibrium point moves from point E
4:26 to E dash. The consumer purchases more
4:32 of X from X1 to X2.
4:36 The equilibrium points when they move
4:44 we get a locus of all equilibrium points
4:48 where X is purchased as a result of fall
4:52 in its price. This locus is called price
4:57 consumption curve of good X.
5:00 This is the upper part of the diagram.
5:03 Now draw the demand for good X on the
5:13 Take price of X on the vertical axis
5:16 and quantity of X on the horizontal axis.
5:19 axis.
5:23 The lower panel is drawn symmetrically
5:25 and in the same alignment as the upper panel.
5:28 panel.
5:32 Quantity of X say X1
5:35 can be directly extended this way with
5:39 the same measurement. So X1 is here. X2
5:48 is here. Level it this way.
5:53 Now x1 is associated with
5:56 price p1
6:00 which corresponds to the point e which
6:02 is the initial equilibrium on budget
6:06 line a b. P1 can be labeled somewhere
6:10 here on the vertical axis on the lower panel.
6:13 panel.
6:15 Quantity X2
6:20 is associated with price P1 dash
6:24 which corresponds to point E dash on the
6:26 upper panel of the diagram
6:31 on budget line AB dash and you know that
6:35 P1 dash is below P1 that is P1 dash is
6:40 less than P1 so level it below P1 on the
6:49 Find the combination of X1 and P1
6:52 at point E1.
6:57 The combination of P1 dash with X2
7:07 Join both E1 and E2 to get demand curve
7:12 DX which is downward sloping. Now you
7:15 can find that the demand for X is
7:18 derived from the price consumption
7:22 curve. Thank you.
7:24 Look at the derivation of the demand
