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Slutsky Equation Quasilinear Preferences Buying and Selling Consumer’s Surplus Econ 101: Intermediate Microeconomics Consumer Theory II: Individual Demand Analysis Part 2 Jing Li Department of Economics University of Pennsylvania February 12, 2009 Jing Li Intermediate Microeconomics
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Slutsky Equation Quasilinear Preferences Buying and Selling Consumer’s Surplus Substitution Effect and Income Effect Signs of Substitution Effect and Income Effect Hicks Substitution Effect Slutsky Equation Multiple consequences of a price change Given: m , p 2 , p 1 p 0 1 ; Consequences of the price change: The exchange rate between the two goods are different, i.e., p 1 p 2 p 0 1 p 2 ; The purchasing power has changed, i.e., m p 1 m p 0 1 . Change in optimal choice reflects both factors. Jing Li Intermediate Microeconomics
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Slutsky Equation Quasilinear Preferences Buying and Selling Consumer’s Surplus Substitution Effect and Income Effect Signs of Substitution Effect and Income Effect Hicks Substitution Effect Slutsky Equation Multiple consequences of a price change Given: m , p 2 , p 1 p 0 1 ; Consequences of the price change: The exchange rate between the two goods are different, i.e., p 1 p 2 p 0 1 p 2 ; The purchasing power has changed, i.e., m p 1 m p 0 1 . Change in optimal choice reflects both factors. Jing Li Intermediate Microeconomics
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Slutsky Equation Quasilinear Preferences Buying and Selling Consumer’s Surplus Substitution Effect and Income Effect Signs of Substitution Effect and Income Effect Hicks Substitution Effect Slutsky Equation Multiple consequences of a price change Given: m , p 2 , p 1 p 0 1 ; Consequences of the price change: The exchange rate between the two goods are different, i.e., p 1 p 2 p 0 1 p 2 ; The purchasing power has changed, i.e., m p 1 m p 0 1 . Change in optimal choice reflects both factors. Jing Li Intermediate Microeconomics
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Slutsky Equation Quasilinear Preferences Buying and Selling Consumer’s Surplus Substitution Effect and Income Effect Signs of Substitution Effect and Income Effect Hicks Substitution Effect Slutsky Equation Multiple consequences of a price change Given: m , p 2 , p 1 p 0 1 ; Consequences of the price change: The exchange rate between the two goods are different, i.e., p 1 p 2 p 0 1 p 2 ; The purchasing power has changed, i.e., m p 1 m p 0 1 . Change in optimal choice reflects both factors. Jing Li Intermediate Microeconomics
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Slutsky Equation Quasilinear Preferences Buying and Selling Consumer’s Surplus Substitution Effect and Income Effect Signs of Substitution Effect and Income Effect Hicks Substitution Effect Slutsky Equation Multiple consequences of a price change Given: m , p 2 , p 1 p 0 1 ; Consequences of the price change: The exchange rate between the two goods are different, i.e., p 1 p 2 p 0 1 p 2 ; The purchasing power has changed, i.e., m p 1 m p 0 1 .
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