Tài liệu Microeconomics for MBAs 28 doc

Chapter 8 Consumer Choice and Demand in Traditional and Network Markets 17 Changes in Demand The determinants of the elasticity of demand are fewer and easier to identify than the determinants of demand itself. As we saw in Chapter 3, the demand for almost all goods is affected in one way or another by (1) consumer incomes; (2) the prices of other goods; (3) the number of consumers; (4) expectations concerning future prices and incomes; and (5) that catchall variable, consumer tastes and preferences. Additional variables apply in differing degrees to different goods. The amount of ice cream and the number of golf balls bought both depend on the weather (very few golf balls are sold at the North Pole). The number of cribs demanded depends on the birthrate. Together all these variables determine the position of the demand curve. If any variable changes, so will the position of the demand curve. We saw in Chapter 3 that if consumer preference for a product—say, blue jeans— increases, the change will be reflected in an outward movement of the demand curve (see Figure 8.7). That is what happened during the late 1960s, when college students’ tastes changed and wearing faded blue jeans became chic. By definition, such a change in taste means that consumers are willing to buy more of the good at the going market price. If the price is P 1 , the quantity demanded will increase from Q 2 to Q 3 . A change in tastes can also mean that people are willing to buy more jeans at each and every price. At P 2 they are now willing to buy Q 2 instead of Q 1 blue jeans. We can infer from this pattern that consumers are willing to pay a higher price for any given quantity. In Figure 8.7, the increase in demand means that consumers are willing to pay as much as P 2 for Q 2 pairs of jeans, whereas formerly they would pay only P 1 . (If consumers’ tastes change in the opposite direction, the demand curve moves downward to the left, as in Figure 8.8, a quantity demanded at a given price decreases.) Whether demand increases or decreases, the demand curve will still slope downward. Everything else held constant, people will buy more of the good at a lower price than a higher one. To assume that other variables will remain constant, of course, is unrealistic because markets are generally in a state of flux. In the real world, all variables just do not stay put to allow the price of a good to change by itself. Even if conditions change at the same time that price changes, the law of demand tells us that a decrease in price will lead people to buy more than they would otherwise, and an increase in price will lead them to buy less. For example, in Figure 8.8, the demand for blue jeans has decreased, because consumers are less willing to buy the product. A price reduction can partially offset the decline in demand. If producers lower their price from P 2 to P 1 , quantity demanded will fall only to Q 2 instead of Q 1 . Although consumers are buying fewer jeans than they once did (Q 2 as opposed to Q 3 ) because of changing tastes, the law of demand still holds. Because of the price change, consumers have increased their consumption over what it would otherwise have been. A change in consumer incomes will affect demand in more complicated ways. The demand for most goods, called normal goods, increases with income. A normal good or service is any good or service for which demand rises with an increase in income and falls with a decrease in income. The demand for a few luxury goods actually outstrips increases in income. A luxury good or service is any good or service for which Chapter 8 Consumer Choice and Demand in Traditional and Network Markets 18 demand rises proportionally faster than income. An inferior good or service is any good or service for which demand falls with an increase in income and rises with a decrease in income. Beans are an example of a good many people would consider inferior. People who rely on beans as a staple or filler food when their incomes are low may substitute meat and other higher-priced foods when their incomes rise. FIGURE 8.7 Increase in Demand When consumer demand for blue jeans increases, the demand curve shifts from D 1 to D 2 . Consumers are now willing to buy a larger quantity of jeans at the same price, or the same quantity at a higher price. At price P 1 , for instance, they will buy Q 3 instead of Q 2 . And they are now willing to pay P 2 for Q 2 jeans, whereas before they wold pay only P 1 . _ ___________________________________ FIGURE 8.8 Decrease in Demand A downward shift in demand, from D 1 to D 2 , represents a decrease in the quantity of blue jeans consumers are willing to buy at each and every price. It also indicates a decrease in the price they are willing to pay for each and every quantity of jeans. At price P 2 , for instance, consumers will now buy only Q 1 jeans (not Q 3 , as before); and they will now pay only P 2 for Q 1 jeans not P 3 , as before. Thus, while economists can confidently predict the directional movement of consumption when prices change, they cannot say what will happen to the demand for a particular good when income changes, because each individual determines whether a particular good is a normal, inferior, or luxury good. Different people will tend to answer this question differently in different markets. Beans may be an inferior good to most low-income consumers and a normal good to many others. For example, how do you think a change in income will affect the demand for low-, medium-, and high-quality liquor? You may have some intuitive notion about the effect, but you are probably not as confident about it as you are about the effect of a price Chapter 8 Consumer Choice and Demand in Traditional and Network Markets 19 decrease. In fact, during past recessions, the demand for both low- and high-quality liquor has increased. Some consumers may have switched to high-quality liquor to impress their friends, and to suggest that they have been unaffected by the economic malaise. Others may have tried to maintain their old level of consumption by switching to a low-quality brand. The effect of a change in the price of other goods is similarly complicated. Here the important factor is the relationship of one good—say, ice cream—to other commodities. Are the goods in question substitutes for ice cream, like frozen yogurt? Are they complements, like cones? Are they used independently of ice cream? Demand for ice cream is unlikely to be affected by a drop in the price of baby rattles, but it may well decline if the price of frozen yogurt drops. Two products are generally considered substitutes if the demand for one goes up when the price of the other rises. The price of a product does not have to rise above the price of its substitute before the demand for the substitute is affected. Assume that the price of sirloin steak is $6 per pound and the price of hamburger is $2 per pound. The price difference reflects the fact that consumers believe the two meats are of different quality. If the price of hamburger rises to $4 per pound while the price of sirloin remains constant at $6, many buyers will increase their demand for steak. The perceived difference in quality now outweighs the difference in price. Because complementary products—razors and razor blades, oil and oil filters, VCRs and videocassette tapes—are consumed jointly, a change in the price of one will cause an increase or decrease in the demand for both products at once. An increase in the price of razor blades, for instance, will induce some people to switch to electric razors, causing a decrease in the quantity of razor blades demanded and a decrease in the demand for safety razors. Again, economists cannot predict how many people will decide the switch is worthwhile, they can merely predict from theory the direction in which demand for the product will move. Derivation of Demand from Indifference Curves And the Budget Line Our discussion of theoretical foundations of demand has, admittedly, been casual. Here we can add greater precision to the analysis. Much of the discussion has been founded on the notion of the rational pursuit of individual preferences. That is, we assume the individual knows what he or she wants and will seek to accomplish those goals. Preference, however, is a nebulous concept. To lend concreteness to the idea, economists have developed the indifference curve. Individuals face limits in what they can produce and buy, a point of earlier chapters. That fact, together with the existence of indifference curves, can be used to derive an individual’s demand for a product. Chapter 8 Consumer Choice and Demand in Traditional and Network Markets 20 Derivation of the Indifference Curve Consider a student whose wants include only two goods, pens and books. Figure 8.9 shows all the possible combinations of pens and books she may choose. The student will prefer a combination far from the origin to one closer in. At point b, for instance, she will have more books and more pens than at point a. For the same reason, she will prefer a to c. In fact the student will prefer a to any point in the lower left quadrant of the graph and will prefer any point in the upper right quadrant to a. We can also reason that the student would prefer a to d, where she gets the same number of pens but fewer books than at a. Likewise, she will prefer e to a because it yields the same number of books and more pens than a. If a is preferred to d and e is preferred to a, then as the student moves from d to e, she must move from a less preferable to a more preferable position with respect to a. At some point along that path, the student will reach a combination of books and pens that equals the value of point a. Assuming that combination is f (it can be any point between d and e), we can say that the individual is indifferent between a and f. Using a similar line of logic, we can locate another point along the line gih that will be equal in value to a and therefore to f. In fact, any number of points in the lower right-hand and upper left-hand quadrants of the graph are of equal value to a. Taken together, these points form what is called an indifference curve (see curve I 1 in Figure 8.10). _____________________________________ FIGURE 8.9 Derivation of an Indifference Curve Because the consumer prefers more of a good to less, point a is preferable to point c, and point b is preferable to point a. If a is preferable to demand but e is preferable to a, then when we move from point d to e, we must move from a combination that is less preferred the one that is more preferred. In doing so we must cross a point—for example, f—that is equal in value to a. Indifference curves are composed by connecting all those points—a, f, i, and so on—that are of equal value to the consumer. Using a similar line of logic, we can locate another point along the line gih that will be equal in value to a and therefore to f. In fact, any number of points in the lower right-hand and upper left-hand quadrants of the graph are of equal value to a. Taken together, these points form what is called an indifference curve (see curve I 1 in Figure 8.10). An indifference curve shows the various combinations of two goods that yield the same level of total utility. Chapter 8 Consumer Choice and Demand in Traditional and Network Markets 21 Using the same line of reasoning, we can construct a second indifference curve through point b. Because b is preferable to a, and all points on the new indifference curve will be equal in value to point b, we can conclude that any point along the new curve I 2 is preferable to any point on I 1 . Using this same procedure, we can continue to derive any number of curves, each one higher than, and preferable to, the last. From this line of reasoning, an economist can draw several conclusions about the student’s preference structure (called an “indifference map”): 1. The student’s total utility level rises as she moves up and to the right, from one indifference curve to the next. 2. Indifference curves slope downward to the right. 3. Indifference curves cannot intersect. (An intersection would imply that all points on all the intersecting curves are of equal value, contradicting the conclusion that higher indifference curves represent higher levels of utility). FIGURE 8.10 Indifference Curves for Pens and Books Any combination of pens and books that falls along curve I 1 will yield the same level of utility as any other combination on that curve. The consumer is indifferent among them. By extension, any combination on curve I 2 will be preferable to any combination on curve I 1 . The Budget Line and Consumer Equilibrium From indifference curves we can derive the law of demand. First we need to construct the individual’s budget line, a special form of the production possibilities curve. The budget line shows graphically all the combinations of two goods that a consumer can buy with a given amount of income. Assume that our student earns an income of $150, which she uses to buy books and pens. Books cost $3 each and pens cost $5 a package. The student can spend all $150 on fifty books or thirty pen packs, or she can divide her expenditures in any number of ways to yield various combinations of books and pens. By plotting all the possible combinations, we obtain the student’s budget line, B 1 P 1 in Figure 8.11. All combinations on the budget line are possible for the student. She can choose point a, twenty-five books and fifteen pen packs, or point b, forty-five books and three Chapter 8 Consumer Choice and Demand in Traditional and Network Markets 22 pen packs. Either combination exhausts her $150 budget. The rational individual will choose that point where the budget line just touches (is tangent to) an indifference curve—point a in this case. 4 Points farther up or down the budget line will put the student on a lower indifference curve and are therefore less preferable. (If, for instance, the student moves to c on the budget line, she will be on a lower indifference curve, I 2 instead of I 1 .) At point a, the individual’s wants are said to be in equilibrium. As long as her income and preferences and the prices of books and pens remain the same, she has no reason to move from that point. 5 4 This tangency condition can be derived mathematically by maximizing the consumer's utility subject to the budget constraint, or by maximizing the U (X,Y) with respect to X and Y, subject to P x X + P y Y = I. This constrained maximization problem can be carried out by forming the Lagrangian function )()( 1 YPXPIYXUL YX −−+= λ where λ is known as a Lagrangian multiplier, and maximizing it with respect to X and Y and minimizing it with respect to λ. The necessary conditions are 0=− ∂ ∂ = ∂ ∂ X P X U X L λ 0=− ∂ ∂ = ∂ ∂ Y P Y U Y L λ 0=−−= ∂ ∂ YPXPI L YX λ Equation (1) can be divided by equation (2), which, after simple algebraic manipulation, yields (Missing equation to be added). The left-hand side of this equation is -1 multiplied by the ratio of the marginal utility of good X to the marginal utility of good Y, or the slope of the indifference curve. The right-hand side is -1 multiplied by the ratio of the price of good X to the price of good Y, or the slope of the budget constraint. The equality of these two slopes is dependent on the assumption that the consumer will consume positive quantities of both goods. Later in this chapter, we will consider the possibility that the consumer may maximize utility subject to the budget constraint by deciding to consume none of one of the goods. 5 We can provide another intuitive rationale for the required condition for consumer equilibrium. Starting with the tangency requirement Y X Y X P P MU MU = we can obtain the equivalent condition Y Y X X P MU P MU = by simple algebraic manipulation. Verbally, this means that the consumer receives the same increase in utility from spending $1 more on good X as would be received from spending more on good Y. We can see that this condition is necessary if utility is being maximized subject to the budget constraint by assuming that the condition is not satisfied. Assume for example, that (continued on next page) Y Y X X P MU P MU > Chapter 8 Consumer Choice and Demand in Traditional and Network Markets 23 ___________________________________ FIGURE 8.11 The Budget Line and Consumer Equilibrium Constrained by her budget, the consumer will seek to maximize her utility by consuming at the point where her budget line is tangent to an indifference curve. Here the consumer chooses point a, where her budget line just touches indifference curve I 1 . All other combinations on the consumer’s budget line will fall on a lower indifference curve, providing less utility. Point c, for instance, falls on indifference curve I 2 . _________________________________ What happens if prices change? Suppose the individual’s wants are in equilibrium at point a in Figure 8.11 when the price of pens falls from $5 a pack to $3 a pack. (The price of books stays the same.) The budget line will pivot to B 1 P 2 in Figure 8.12, reflecting the greater buying power of the student’s income. (She can now buy fifty pen packs with $150.) The new budget line gives the student a chance to move to a higher indifference curve—for instance, to point c, twenty-two pens and twenty-eight books. The Law of Demand, Again The result of the price reduction is that the student buys more pens. Thus we derive the law of demand, that quantity demanded is inversely related to price. The downward- sloping demand curve for pens shown in Figure 8.13 is obtained by plotting the quantities of pen packs bought from Figure 8.12 against the price paid per pack. When the price of pens falls from $5 to $3 a pack in Figure 8.12, the consumer increases the quantity purchased from fifteen to twenty-two packages. This tells us that if $1 less is spent on good Y, utility will not decline as much as it will increase if $1 more is spent on good X. Therefore, the consumer can increase total utility without increasing expenditures by reducing the consumption of good Y and increasing the consumption of good X. This will continue to be true until the equality is restored, which will happen eventually as MU Y increases relative to MU X . In a similar manner, we can argue that the consumer will move toward the equilibrium condition if we assume that Y Y X X P MU P MU < Chapter 8 Consumer Choice and Demand in Traditional and Network Markets 24 FIGURE 8.12 Effect of a change in Price on Consumer Equilibrium If the price of pens falls, the consumer’s budget line will pivot outward, from B 1 P 1 to B 1 P 2 . As a result, the consumers can move to a higher indifference curve, I 2 instead of I 1 . At the new price the consumer buys more pens, twenty-two packs as opposed to fifteen. FIGURE 8.13 Derivation of the Demand Curve for Pens When the price of pens changes, shifting the consumer’s budget line from I 1 to I 2 in Figure 8.14, the consumer equilibrium point changes with it. The consumer’s demand curve for pens is obtained by plotting her equilibrium quantity of pens at various prices. At $5 a pack, the consumer buys fifteen packs of pens (point a). At $3 a pack, she buys twenty-two packages (point c). Application: Cash Versus In-Kind Transfers A cash grant will raise the welfare of the poor more than an in-kind transfer of equal value. Figure 8.14 illustrates a poor family’s budget line for higher education and housing, H 3 E 3 . Without subsidies, this family can buy as much as E 3 units of education (and no housing) or H 3 units of housing (and no education). Because the family wants both housing and higher education, it will probably divide its income between the two, choosing some combination like point a, or E 1 education and H 1 housing. Suppose that the government decides to subsidize the family’s higher education purchases through reduced university tuition. Its action lowers the total price of education, pivoting the family’s budget line out to H 3 E 5 . The result is that the family can now consume more of both items, education and housing. The family will probably move to some combination like b, H 2 housing and D 2 education Its education consumption has gone up and the additional housing purchased represents an increase in income equal to the vertical distance between b and c. Suppose the family were given the cash equivalent of bc instead. The additional money would not change the relative prices of higher education and housing, as the reduced tuition program did. It would shift the budget line from H 3 E 3 to a parallel position, H 4 E 4 (dashed line). The relative price of housing is lower on H 4 E 4 than on Chapter 8 Consumer Choice and Demand in Traditional and Network Markets 25 25 H 3 E 5 . Thus the family would tend to prefer d to b, both of which are available on line H 4 E 4 , we must presume that they would prefer cash to an in-kind subsidy. This point can be seen even more clearly with the help of indifference curves. Imagine an indifference curve tangent to H 3 E 3 in the absence of government relief, causing the family to point a. Imagine a higher indifference curve that is tangent to H 3 E 5 at point b. Now, imagine an even higher indifference curve tangent to H 4 E 4 at point d. __________________________________________ FIGURE 8.14 Budget Line: Cash Grants versus Food Stamps If the price of education is reduced by an in-kind subsidy, a family’s budget line will pivot from H 3 E 3 to H 3 E 5 . The family will move from point a to point b, where it can consume more food and housing. If the family is given the same subsidy in cash, its budget line will move from H 3 E 3 to H 4 E 4 . Since the relative price of housing is lower on H 4 E 4 than on H 3 E 5 , the family will choose a point like d over b. Since b was the family’s preferred point on H 3 E 5 , but they prefer d to b, we must presume they also prefer cash to a food subsidy. _________________________________________ Application: Capturing the Consumer surplus The price that a consumer pays for a good reflects the value that he or she places on an additional unit of the good. Since the price normally applies uniformly to all units of the good purchased and the consumer generally values the last unit consumed less than the units consumed previously, the consumer values the total consumption of a good at more than the amount paid for its consumption. The gap between what a consumer is willing to pay rather than do without a good (the total value placed on the good) and what the consumer actually pays is referred to as the consumer surplus. Obviously, suppliers prefer that consumers pay more rather than less for a good and are anxious to capture as much consumer surplus as possible. We can employ indifference-curve analysis to show how suppliers use different pricing schemes to encourage consumers to pay more for a given quantity of a good than they would if the good were uniformly priced. Conceptually, the simplest way for a supplier to capture the total consumer surplus of an individual would be to charge a different price for each unit consumed and to price each unit at the maximum amount the consumer is willing to pay for that unit. But such a pricing policy would be enormously difficult to implement. The supplier Chapter 8 Consumer Choice and Demand in Traditional and Network Markets 26 26 would have to obtain detailed information about all consumers' preferences. Also, consumers who place a relatively small value on the good and therefore purchase it for less, would have to be prevented from selling the good to consumers who value it more highly. Otherwise, low-demand consumers would be able to buy the good at a relatively cheap price and profitably undercut the price that the supplier is charging the high- demand consumers. A final and related difficulty is that the more competitors a supplier has, the more difficult it is to charge the same customer different prices for different units or to charge different customers different prices. Although a consumer may be willing to pay the only supplier of a good more for the first unit than the second unit, more for the second unit than the third unit, and so on, this is not necessarily true when the consumer can choose among several suppliers. A consumer will not be willing to pay one supplier any more for a particular unit of a good than is being charged by an alternative supplier. The consumer still values the first unit of the good more than the second unit, but competition among several suppliers makes it difficult for any one supplier to take advantage of this fact by imposing a different pricing strategy on each consumer and charging each consumer a different price for each unit purchased. However, relatively crude or simple price-discrimination schemes can be implemented that allow suppliers to capture more of the consumer surplus than they could under a uniform pricing policy. Such a price-discrimination scheme is illustrated in Figure 8.15 with the aid of an individual's indifference-curve map. We assume the individual is initially at Y , consuming Y units of good Y and no units of good X. Indifference curve I 1 indicates the consumer's level of satisfaction for this consumption bundle. Given an opportunity to purchase good X at a uniform price, reflected in the slope of budget constraint YX , the consumer will purchase X 2 units and increase satisfaction by reaching the higher indifference curve I 2 . Increased satisfaction is derived because less is being paid for the X 2 units than they are worth to the consumer. The total value of the X 2 units to the consumer is given in Figure 8.15 by the distance 1 YY− , which is the maximum amount of good Y the consumer is willing to sacrifice to obtain X 2 units. (The consumer is indifferent between Y units of Y and no X and Y 1 units of Y and X 2 units of X.) But given the budget constraint YX , the consumer only has to sacrifice 2 YY− units of Y to obtain X 2 units of X. The distance Y 2 – Y 1 measures the consumer surplus associated with the consumer's ability to buy good X at a uniform price. The supplier is interested in whether a relatively simple pricing strategy will capture some of this consumer surplus. The supplier's objective is to raise the price and still have the consumer purchase the same quantity of good X. If the supplier raises the price uniformly, however, the budget constraint will pivot to the left around point Y , and the consumer can be expected to purchase fewer units of good X. But what will happen if the supplier imposes a two-part pricing policy, which allows the consumer to purchase good X at a lower price if a specified number of initial units of X are purchased at a higher price? Assume, for example, that the consumer faces the budget constraint XaY in Figure 8.15. If the first X 1 units of good X are purchased at the higher price . price. At price P 1 , for instance, they will buy Q 3 instead of Q 2 . And they are now willing to pay P 2 for Q 2 jeans, whereas before they wold pay. willing to pay for each and every quantity of jeans. At price P 2 , for instance, consumers will now buy only Q 1 jeans (not Q 3 , as before); and they