2-11-09 - Microeconomics Class Notes 2/11/09 Finished...

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Microeconomics – Class Notes – 2/11/09 Finished Chapter 3 Starting Chapter 4 FROM THE WORKBOOK (HOMEWORK) #18
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4. Now what’s different between these functions: QUESTION: what was the power in this case to which we raised the equations to compare them? WHY THE DEMAND CURVE SLOPES DOWNWARD: 1. Income effect – If the price of good X increases, then real purchasing power decreases (consume less of all normal goods). a. Giffen good – an inferior good that has a strong income effect WHAT IS THIS AGAIN? 2. Substitution effect When the price of a substitute good goes up, the quantity demanded of the other good with a lower opportunity cost will increase Shift away from more expensive goods to cheaper goods.
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WORKSHEET Book – Hicksian approach In class Slutsky. approach Only measure the good on the axis on which the price has changed Hicksian Hold utility constant and allow price to change o What budget constraint would we be on and what bundle of goods would we
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2-11-09 - Microeconomics Class Notes 2/11/09 Finished...

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