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ConsumerDemand_Lectures_Theory_2perpage

ConsumerDemand_Lectures_Theory_2perpage - Econ 1002 Applied...

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Econ 1002: Applied Economics Matthew Wakefield University College London and Institute for Fiscal Studies m.wakefield (at) ucl.ac.uk Jan - Mar 2009 Office Hour: Tues 3-3.55, Room 209, Drayton www.ucl.ac.uk/economics/degree-courses/undergraduate/course-list/courses/econ1002 coursepage or link from: www.ucl.ac.uk/economics/degree-courses/undergraduate/course-list/courses/applied-economics Thanks to the previous two lecturers, Professors Ian Preston and James Banks, for much of the content of this course. Econ 1002 Matthew Wakefield Outline Theory Income Income Elasticities Price P Elast Other Ps Demographics Summary Consumer Demand Study of how individuals/households allocate their scarce resources between goods in a given period. That is, of how much consumers spend on each good And what determines these choices Matthew Wakefield (UCL/IFS) Econ 1002 Jan - Mar 2009 2 / 19
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Econ 1002 Matthew Wakefield Outline Theory Income Income Elasticities Price P Elast Other Ps Demographics Summary Outline III: Consumer Demand 1 Consumer Theory Income or Total Budget Effects Income Elasticities Own Price Effects Price Elasticity of Demand Other Prices Demographics Summary Matthew Wakefield (UCL/IFS) Econ 1002 Jan - Mar 2009 3 / 19 Econ 1002 Matthew Wakefield Outline Theory Income Income Elasticities Price P Elast Other Ps Demographics Summary Theory Consumer’s demand depends on: Budget Constraint Income / Total resources = Total expenditure (if no saving/borrowing) Prices Preferences Tastes Age Household characteristics / demographics These are items we will include in empirical specification Helpful to revisit consumer theory to see what we will look for in data Matthew Wakefield (UCL/IFS) Econ 1002 Jan - Mar 2009 4 / 19
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Econ 1002 Matthew Wakefield Outline Theory Income Income Elasticities Price P Elast Other Ps Demographics Summary Theory Income Consumer theory does NOT constrain direction of effect of increase in income on demand for a single good. Normal Good Demand Rises with income Inferior Good Demand falls with income Perhaps because better substitutes or more variety become available Matthew Wakefield (UCL/IFS) Econ 1002 Jan - Mar 2009 5 / 19 Econ 1002 Matthew Wakefield Outline
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