ABSTRACT
Having derived demand functions by maximizing preferences on budgets, people now study what happens to the quantity demanded of any good by a consumer when there is a change in the price of a single good, or a change in income. People derive individual demand elasticities with respect to prices and income. Exploring the nature of demand further, people find that while economists generally believe that there is a “Law of Demand” for market demand curves—a lower price increases the quantity demanded for a good—no such law is implied by a consumer’s preference-maximizing behavior for individual demand functions. Individual demand functions depend on three parameters in general: the prices of the two goods and income. Changing any one of these at a time enables people to trace the path of preference-maximizing bundles in the commodity space. Changing one of the prices yields a price consumption curve, while changing income yields an income consumption curve.
