Page 153 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Microeconomic Theory

Notes
Fig. 7.8

A
B
Sweetness Y Y 1 E

X 1 C
F
1 I
E 2
I 1
Z
F

G
G
1

O Juiciness

New brand combination of B and C – OF (=G E ) speciality from brand B and OG (=F E ) speciality for
1
1
1
1
1
1
brand C. So effect of reduced price of brand B, is that its demand has increased and decrease in demand
of brand C. This is the explanation of demand law where the price of a brand or commodity is less.
Adversely, it increases due to increase in price.
Rise in Price: Increase in price of brand B is shown in Fig. 7.9 where consumer initially budget line
XYZ and I curve of touch point E are in equilibrium. Suppose that price of brand B increases in price
2
whose result is point Y on ray OB reaches on point Y below by moving. Now XY Z budget line in low
o
0
touches I curve on point E where consumer is in equilibrium. Now it substitutes brand C in place
1 o
of brand B and GG (OG > OG) of brand buys more quantity and FF (OF < OF) of brand B buys
1 1 1 1
less quantity as before. Here increase in price of brand B affected by Lancaster’s ability. Increase in
Fig. 7.9
A B
Sweetness Y

X Y 0 E
C
F E I 2
0 I
F Z 1
1
G 1
G

O Juiciness

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