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Unformatted text preview: -Ratio of Y/X independent of income AND price Linear Utility: U(X,Y) = alpha * X + beta * Y-Constant MRS everywhere, independent-2 goods are perfect substitutes Due to Substitution Effect: 1) Government imposes a tax 2) Change in X1 to Xb Due to Income Effect: 1) Change in Xb to X2 Due to Both: 1) Price increases 2) Price decreases 3) Change in X1 to X2...
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This note was uploaded on 09/24/2008 for the course ECON 302 taught by Professor Toossi during the Fall '08 term at University of Illinois at Urbana–Champaign.
- Fall '08