Section6 - Aniko Oery University of California, Berkeley...

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Aniko Oery University of California, Berkeley Section 6: Individual demand, market demand and CPI Econ 100A, MICRO-ECONOMIC ANALYSIS, Spring 2010 Last time we have learned how individuals choose the utility maximizing consumption bundle given a budget constraint. Today, we will focus on how this optimal choice is affected if prices or income change. If we focus on one good and only change the price of that good, we can derive the demand curve. The overall price level in an economy can be measured by different price indices. One of them is the CPI index that measures the price of an ”average basket”. Using this index we can calculate inflation or real price levels. 1 Income changes Let us assume that we are back in the setting with two goods A and B with given preferences on all possible baskets, prices p A , p B of the two goods and an income I that gives us the budget constraint. The line that represents all optimal baskets in the ( A, B ) plane when the income I changes is called the
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This note was uploaded on 03/18/2010 for the course ECON 100A taught by Professor Woroch during the Spring '08 term at University of California, Berkeley.

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Section6 - Aniko Oery University of California, Berkeley...

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