ch06 - CHAPTER 6 DEMAND RELATIONSHIPS AMONG GOODS Two types...

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CHAPTER 6 DEMAND RELATIONSHIPS AMONG GOODS Two types of demand relationships are stressed in the problems to Chapter 6: cross-price effects and composite commodity results. The general goal of these problems is to illustrate how the demand for one particular good is affected by economic changes that directly affect some other portion of the budget constraint. Several examples are introduced to show situations in which the analysis of such cross-effects is manageable. Comments on Problems 6.1 Another use of the Cobb-Douglas utility function that shows that cross-price effects are zero. Explaining why they are zero helps to illustrate the substitution and income effects that arise in such situations. 6.2 Shows how some information about cross-price effects can be derived from studying budget constraints alone. In this case, Giffen’s Paradox implies that spending on all other goods must decline when the price of a Giffen good rises. 6.3 A simple case of how goods consumed in fixed proportion can be treated as a single commodity (buttered toast). 6.4 An illustration of the composite commodity theorem. Use of the Cobb-Douglas utility produces quite simple results. 6.5 An examination of how the composite commodity theorem can be used to study the effects of transportation or other transactions charges. The analysis here is fairly intuitive —for more detail consult the Borcherding-Silverberg reference. 6.6
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This note was uploaded on 11/06/2009 for the course ECON ECON111 taught by Professor Smith during the Spring '09 term at Punjab Engineering College.

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ch06 - CHAPTER 6 DEMAND RELATIONSHIPS AMONG GOODS Two types...

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