In this article we will discuss about how consumption theory can be examined in terms of revealed preference approach. The negative slope of the demand curve can be demonstrated from revealed preference approach. On the basis of the assumption that the consumer behaves consistently, we can show that the substitution effect of a change in the relative prices of commodities [...]
The upcoming discussion will update you about the difference between income effect and substitution effect. It is a well-known proposition of consumption theory that a rational consumer reaches equilibrium when he chooses the bundle of goods that maximises his satisfaction. He will continue to consume the goods in the proportions indicated by the point of tangency between the budget line [...]
In this article we will discuss about consumer’s demand curve for normal good, explained with the help of suitable diagrams. It is easy to show how ordinary demand curves for individual consumers can be constructed from their indifference maps. In Fig. 14 we derive the demand curve of our representative consumer, Ram, for a simple commodity, say bread. In order [...]