DemandComparativeStaticsSp08 - 1 Change in income Income...

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1 Change in income Income o/er curve: Demand bundles for di/erent levels of income. Engel curve: Demand for a good as a function of income 0 1 2 3 4 5 0 1 2 3 4 5 x y 0 1 2 3 4 5 0 1 2 3 4 5 x1 m Normal Good : @x 1 ( p 1 ;p 2 ;m ) @m > 0 : Demand increases with income. Inferior Good: @x 1 ( p 1 ;p 2 ;m ) @m < 0 : Demand decreases with income. 0 1 2 3 4 5 0 1 2 3 4 5 x1 x2 0 1 2 3 4 5 0 1 2 3 4 5 x1 x2 Luxury Good: demand for the good goes up by a greater proportion than income. Necessary good: demand for the good goes up by a lesser propor- tion than income. 1
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2 Change in own price Price o/er curve : Demand bundles for di/erent levels of the price of a good Marshallian demand curve : Demand for a good as a function of its price. 0 1 2 3 4 5 0 1 2 3 4 5 x1 x2 0 1 2 3 4 5 0 1 2 3 4 5 x1 p Ordinary Good: @x 1 ( p 1 ;p 2 ;m ) @p 1 < 0 : Demand decreases when its price increases. Gi/en Good : @x 1 ( p 1 ;p 2 ;m ) @p 1 > 0 : Demand increases when its price increases. 0
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DemandComparativeStaticsSp08 - 1 Change in income Income...

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