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Econ 10101 13th

# Econ 10101 13th - As your income increases you inevitably...

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Econ 10101 13 th MUa/Pa > MUb/Pb :- you will always buy more b – bananas Reverse for the other way around You would keep following the trend till the LHS and RHS are equal. You must spend your entire income – in a market with only two goods – and no other utility for the money you have: then you would maximize what you are going to buy within your budget constraint MUa = 10 – Qa, and MUb = 20 – 2Qb If the price of A is half that of B If you solve: then you get Qa=Qb Changes in Income: Normal Goods As your income goes up, the quantity you buy goes up Inferior Goods As your income goes up, the quantity you buy goes down Indifference Curves don’t cross: as long as indifference curves lie on or within the budget line. They never curve such that X axis and yaxis rise simultaneously
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Unformatted text preview: As your income increases you inevitably spend more on certain goods:- luxury items, clothing, Very well defined in the spectrum of Broad Markets Are there inferior goods? In Narrow markets yes, but not in broad markets… Debate about Addictive substances, how does your buying pattern change toward addictive substances as your income goes up? Changes in Prices Substitutes As the Price of A goes up, the quantity of B goes up instead ( apples and pears) Complements As the Price of A goes up, the quantity of B goes down Giffen Goods As the Price of A goes up, the quantity of A goes up--- (not going to stress a lot) Deriving a demand curve...
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