2-13-09 - income while holding prices constant. If you go...

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Microeconomics – Class Notes – 2/13/09 HOMEWORK PROBLEMS : Chapter 3 – End of Chapter (textbook) # 11, 14, 18-25 QUIZ MONDAY Why does the demand curve slope downward? - Substitution effect always moves you away from the good that is more expensive (if there is one) - Income effect Reduction in consumption of both goods, BUT NOT NECESSARILY. o Can also only reduce the consumption of another good (if there is an inferior good) o Unless there is an inferior good, both goods will be reduced Pivot the budget constraint so that it is still tangent to the Indifference Curve
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Lowering the price from $1 to $.50 has the same (income) effect as a doubling in the amount of
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Unformatted text preview: income while holding prices constant. If you go from one to the other good, it is all substitution effect If you consume less of both goods income effect You have to find the equation for the income consumption curve Page 5 worksheet NEW TOPIC : Deriving Demand, Engel, and Income-consumption curves from Cobb-Douglas preferences Engel : Tells us the relationship between income and quantity demanded, holding all else constant. Indifference curve : Bundle of goods consumed as income changes QUIZ : Will cover the handout and the material from chapter 3 that was not on the exam...
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This note was uploaded on 06/03/2009 for the course ECON 200 taught by Professor Nonnenmacher during the Spring '09 term at Allegheny.

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2-13-09 - income while holding prices constant. If you go...

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