CFA® Level I – Economics
Require and Supply Analysis: Consumer Demand
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Contents and Introduction
three or more.
Consumer Theory: From Choices to Require Functions
Utility Theory: Modelling Preferences and Tastes
The Opportunity Set: Usage Production, and Investment Choice Consumer Equilibrium: Maximizing Power Subject to the Budget Constraint Returning to the Customer's Demand Function
2 . Consumer Theory: Via Preferences to Demand Features
Consumer choice theory corelates consumer require curves to consumer preferences and constraints; it views a card holder's
Preferences and determination to tradeoff between two goods Budget limitations
would like to perform
would carry out
3. Electricity Theory: Modelling Preferences and Tastes
1 . Axioms in the Theory of Consumer Choice
2 . Addressing Consumer Preference: The Energy Function
three or more. Indifference Figure
4. Benefits from Non-reflex Exchange: Creating Wealth through Control
3. 1 Axioms of Consumer Decision Theory
Consumption bundle or basket: mixture of goods and services a consumer would like to consume; same merchandise but diverse quantities means different bundle
Axiom is an presumption which is thought to be accurate
3. 2 Addressing the Desire of a Consumer:
The Energy Function
The utility function is a rule which translates the amounts of goods in each container into a power number (utils)
This amount is a measure of happiness and it is based on an ordinal range General circumstance: U sama dengan f (Qx1, Qx2, ….. Qx3 )
Specific model: say we certainly have milk and bread…
U = f(M, B) = MB
three or more. 3 Indifference Curves: The Graphical Portrayal of the Power Function Indifference curves:
• can be a graphical manifestation of the
• are models of blends (bundles) of
goods amongst which someone is
• incline downward
• do not intercept
Little Rate of Substitution
Not caring curves are convex
Successive reductions in the volume of one
good in the bundle require elevating
quantities of the other good to keep utility
MRS is a absolute benefit of the incline of an
indifference curve at any point
3. 4 Not caring Curve Maps
Which in turn curve would a consumer prefer?
Identify the purpose on curve b wherever MRSBM sama dengan 2
Consumer will be willing to quit 2 oz . of
milk for one particular slice of bread
on the lookout for
You could have 10 grapefruits and a few apples. Your marginal level of replacement of pears for oranges (MRSAO) can be 3 plus your indifferences curves are convex.
1 . Draw your not caring curve and possess this point?
installment payments on your What is the interpretation?
a few. Will you be ready to give 2 oranges to get 1 more apple?
Case in point 2
three or more. 5 Increases from Voluntary Exchange: Create wealth through Trade
4. The ability Set: Ingestion Production, and
1 . Spending budget Constraint
installment payments on your Production Prospect Set
several. Investment Option Set
5. 1 The Budget Constraint
A low cost line signifies all the combinations of two goods that will just deplete a consumer's income. Bounds an area symbolizing all cost-effective combinations of two goods at current prices. Say income sama dengan 100, price of dairy is 10/ounce and price of loaf of bread is 10/slice. Show the budget line. Demonstrate impact on the budget line in the event the price of bread...