Micro notes for Final Exams

Micro notes for Final Exams - Chapter 6 DEMAND The demand...

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Chapter 6 – DEMAND The demand function: x1=x1(p1,p1,m) x2= x2(p1,p2,m) The left hand side stand for the quantity demanded. The right hand side of each equation is the function that related the prices and income to that quantity. Comparative statics: comparing 2 situations, before and after a change in the economic environment, static, not concerned with any adjustment process that may involve in moving from one choice to another; rather we will only examine equilibrium choice. Optimal choice is only affected by: prices and income How does demand change when prices and income change?? Normal good: demand for a good increases and income increases Inferior good: increase in income results in a reduction of the consumption of that good. Luxury good: if the demand goes up by a greater proportion than income. Necessary good: if the demand for a good goes up by a lesser proportion than income. Giffen good: demand for it decreases when the price decreases.
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Micro notes for Final Exams - Chapter 6 DEMAND The demand...

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