disc4 - DISCUSSION SECTION 4 Demand We know preferences, U...

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DISCUSSION SECTION 4 Demand We know preferences, , prices and income, (p 1 ,p 2 ,m). From these we can find demand. ) , ( 2 1 x x U e.g. For Cobb-Douglas utility, + + = 2 1 2 1 , ) , ( p m b a b p m b a a x x . Hence, we can check how the demand is affected by a change a) in income b) in prices ------------------------------------------------------------------------------------------------------------ When income changes, the change in demand can be represented by the: -Income Offer Curve -Engel Curve A good is normal if its quantity demanded rises with an income increase. (Positive slope of Engel curve) A good is inferior if its quantity demanded decreases with an income increase. (Negative slope of Engel curve) When the own-price changes, the change in demand can be represented by the: -Price Offer Curve -Demand Curve A good is ordinary if the quantity demanded decreases as the price increases. A good is giffen if the quantity demanded rises as the price increases. ------------------------------------------------------------------------------------------------------------ QUESTION 1 Benjamin spends his time either watching movies (x
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This note was uploaded on 08/08/2008 for the course ECON 301 taught by Professor Hansen during the Spring '08 term at Wisconsin.

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disc4 - DISCUSSION SECTION 4 Demand We know preferences, U...

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