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LG3 - effect 4 Present and explain the Slutsky equation in...

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University of Wisconsin Department of Economics Economics 301: Intermediate Microeconomic Theory Korinna K. Hansen Learning Guide 3 Due Date: Wednesday, Feb. 20, 2007 Reading Assignment: Varian Chapter 8 up to page 153. Problem Assignment: Problems 1 and 2 on page 157. Objectives: After completing the assignment you should be able to do the following: 1.Give a definition for the substitution and income effects. 2. Use a budget constraint and indifference curve graph, consider a price change for good 1 and show and explain exactly what the substitution and income effects are and why. Be able to present a formula for the two effects. 3. Given a specific function, price and income level, be able to calculate quantity changes after price changes and be able to separate and calculate the exact size of the substitution and income
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Unformatted text preview: effect. 4. Present and explain the Slutsky equation in our standard notation. 5. Use a budget constraint and indifference curve graph, consider a price change for good 1, and show and explain exactly what the substitution and income effects are for an inferior good. 6. Use a budget constraint and indifference curve graph, consider a price change for good 1, and show and explain exactly what the substitution and income effects are for Giffen good. 7. Present in a graph and explain the Slutsky decomposition for two perfect substitutes. 8. Present in a graph and explain the Slutsky decomposition for two perfect complements. 9. Present in a graph and explain the Slutsky decomposition when preferences are quasilinear....
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