Chapter 5 Outline - Chapter 5: Applying Consumer Theory...

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Chapter 5: Applying Consumer Theory Main topics: 1. Deriving demand curves: We use consumer theory to derive demand curves, showing how a change in price causes a shift along a demand curve 2. How changes in income shift demand curves: We use consumer theory to determine how a demand curve shifts because of a change in income 3. Effects of a price change: A change in price has two effects on demand, one having to do with a change in relative prices and the other concerning a change in the consumer’s opportunities 4. Cost-of-living adjustments : Using this analysis of the two effects of price changes, we show that the CPI overestimates the rate of inflation 5. Deriving labor supply curves : Using consumer theory to derive the demand curve for leisure, we can derive workers’ labor supply curves and use them to determine how a reduction in the income tax rate affects labor supply and tax revenue 5.1 Deriving Demand Curves The price-consumption curve is the line through the equilibrium bundles at each
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This note was uploaded on 05/03/2009 for the course PAM 200 taught by Professor Unur during the Spring '08 term at Cornell University (Engineering School).

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Chapter 5 Outline - Chapter 5: Applying Consumer Theory...

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