Lecture 4 - Lecture 4 Roadmap Roadmap Substitution Effects...

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Lecture 4
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oadmap Roadmap ubstitution Effects and Scale Effects Substitution Effects and Scale Effects (Formal definitions & drawing them) ax Incidence • Tax Incidence – Evidence • Elasticities • Hicks-Marshall Laws of Derived Demand
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he Full Effect of a Wage Increase The Full Effect of a Wage Increase ull Effect = Substitution Effect + Scale Full Effect = Substitution Effect + Scale Effect • Draw the new point with a new isocost line and a new isoquant curve. ee drawing on board] [see drawing on board]
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he Substitution Effect The Substitution Effect he effect of the change in the relative The effect of the change in the relative price of inputs holding the quantity roduced constant produced constant. – Original isoquant , New Slope (-W/P K ) • Move along the old isoquant to the point where the lope of the old isoquant is the same as the slope slope of the old isoquant is the same as the slope of the new isocost line.
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This note was uploaded on 01/09/2010 for the course ILRLE 2400 at Cornell University (Engineering School).

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Lecture 4 - Lecture 4 Roadmap Roadmap Substitution Effects...

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