Costs_of_Globalization__Lesson_15_ - Illustrating Changes...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Lesson 15 1 Illustrating Changes in Real Income Globalization increases aggregate economic welfare Globalization harms some while benfitting others How do we model income loss due to globalization? Lesson 15 2 The budget line is the main tool for illustrating changes in real income The budget line shows all combinations of goods that are affordable, given prices and income The budget line is analogous to the consumption frontier Lesson 15 3 Again start by assuming two goods ( X and Y ) Prices: , X P Y P Wage: w Quantities: , X Q Y Q XX YY PQ PQ w +≤ All combinations of affordable goods are represented by the following inequality:
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 Lesson 15 4 Assume all income is spent, so treat this as equality YY XX PQ w PQ =− Rearrange terms to isolate the quantity of good Y on the left-hand side of the equation, and everything else on the right-hand side w += X YX P w QQ PP Lesson 15 5 X Q Y Q Y w P X w P Lesson 15 6 An outward shift of the budget line represents an increase in real income An inward shift of the budget line represents a decrease in real income
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 09/14/2009 for the course ECON 340 taught by Professor Leidholm during the Summer '08 term at Michigan State University.

Page1 / 7

Costs_of_Globalization__Lesson_15_ - Illustrating Changes...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online