Perloff_397614_IM_Ch04

# Perloff_397614_IM_Ch04 - Chapter 4 Demand Chapter Outline...

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Chapter 4 Demand ± Chapter Outline 4.1 Deriving Demand Curves System of Demand Equations Graphical Interpretation 4.2 Effects of an Increase in Income How Income Changes Shift Demand Curves Consumer Theory and Income Elasticities 4.3 Effects of a Price Increase Income and Substitution Effects with a Normal Good Income and Substitution Effects with an Inferior Good Compensated Demand Curve Slutsky Equation 4.4 Cost-of-Living Adjustments Inflation Indexes Effects of Inflation Adjustments 4.5 Revealed Preferences Recovering Preferences Substitution Effect ± Teaching Tips This chapter contains a great deal of important material, and requires several classes to cover effectively. Covering the price consumption curve, Engel curve, and the derivation of demand curves usually takes about one 70-minute period. The material is not intuitively difficult, but students need to be clear about these concepts in order to have the substitution and income effect material make sense. You may want to spread the presentation of the substitution and income effects over more than one period, because students will benefit from having some time to process the first run through, as well as refer back to the book. When presenting the substitution and income effects, try to set up the presentation such that the class can take good quality notes on the graphs. When students come in for help on this material, you might go through their notes with them. What you are likely to discover is that hurriedly drawn indifference curves and freehand wobbly budget constraints have led to a graph that looks almost nothing like the one you put on the board. They may have the imaginary budget line drawn so that it intersects the original point of tangency, which leaves them with no substitution effect. To minimize this problem, in addition to reminding them to bring in a protractor and colored pencils with which to take notes, do the following: The first time demonstrate the separation of the total effect into the two component effects, replicate an example that is in

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44 Perloff • Microeconomics: Theory and Applications with Calculus the text (such as the CDs and DVDs example in Figure 4.5). Tell the class that you are doing this, but ask them to take notes as they normally would rather than just watch me and look at the book. This way, if they make errors in note taking, they can refer to the text to see the correct graph. The other thing that can be helpful is to supply them with pre-drawn indifference curves, as this is where most of the trouble occurs. For example, if they draw their curves much differently than yours when you are demonstrating the separation of income and substitution effects for an inferior good, theirs may not turn out to be inferior.
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## This note was uploaded on 11/03/2009 for the course ARE 100A taught by Professor Constantine during the Spring '08 term at UC Davis.

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Perloff_397614_IM_Ch04 - Chapter 4 Demand Chapter Outline...

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