PAM_2000_Spring_2009_Lecture_9

PAM_2000_Spring_2009_Lecture_9 - BAILEYTICKETS.COM...

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PAM 2000 Lecture 9 Agenda Engel Curves: Consumer equilibrium and changes in income Application of analysis: Labor supply curves The Supply Side: Firms and Production Firms and ownership
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Consumer Equilibrium and Changes  in Income Now say that the income of the consumer rises exogenously How will this affect equilibrium? Equilibria as income are called the income consumption path Can show with Engel curve: relationship between income and quantity consumed
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Consumer Equilibrium and Changes  in Income (con’t) Can think of this as an increase in income holding prices constant (no change in slope) Shifts demand curve to the right for a normal good
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Effect of an Income Increase on an Individual’s Demand Curve
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Consumer Equilibrium and Changes in  Income (con’t) Now suppose good is normal at lower incomes but inferior at higher incomes Engel curve will be backward-bending
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A Good that is Both Inferior and Normal
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Application: Labor Supply Curves Time allocation issue (scarcity)
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