Deriving the Demand Curve
The demand curve can be derived (found) by looking at the optimal bundle from the indifference curve graph.
Example: Let's say the consumer's income is $100.
- In the diagrams above, as the budget line rotates to the right, it means the price of good X must have ________
- This means the price of X dropped from ________ to ________ and the quantity consumed of X at the optimal bundle increased from 6 to 12 units.
- This can be seen on the demand curve in the second diagram.
Example: Deriving the Demand Curve
In the diagram above, as the consumer moves from point G to point H, it implies that there is a:
A) shift to the left in demand for shoes
B) shift to the right in demand for shoes
C) downward movement along demand for shoes D) upward movement along demand for shoes
D.
A movement from point G to H is on a steeper budget constraint which means that the price of shoes have increased. A change in price only causes a movement along the demand curve. Since price is increasing it means there must be an upward movement along the demand.