The Roadmap to computing Individual's demand Functions

Here is how to find Individuals' demand functions in 6 steps.
HI there.


Here are some Important Terms;

  • MRS; Marginal Rate of Substitution.
  • Px; Price of good X.
  • Py; Price of good Y.
  • M; Income.
      STEPS;
    1. Compute the MRS.
    2. Set MRS = -Px/Py (The optimal bundle).
    3. Solve for one of the variables "X" or "Y"
    4. Plug into the Budget line; Px*X + Py*Y = M
    5. Find good X or Y as a function of (Px,Py, M)
    6. Take the demand function and solve for the next Variable.

  • If you are interested in learning more about demand functionsKhan Academi. You can send me email at mcorozco@ucsc.edu