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Unformatted text preview: 2010-03-231ECON201Consumer BehaviorConsumer WelfareEvaluating Consumer WelfareUse insights from Income Effects and Substitution Effects to understand the effect of price changes on consumer choice and wel -beingchoice and wellbeingHow Much is a Health Club Membership Worth?AOGA100Member price-P /P =-5Non-members pay $10 per visit; members pay $5 per visitIncome =$100Maximummembershipfee(What is the most you would be willing to pay for a membership?)Visits to Health ClubUANon-member price-Px/Py=-1010Px/Py=520BCompensating VariationThe amount of income needed in compensation to remain at initial utility level if prices changeAOGA100-Px/Py=-5Suppose prices fell from $10 per visit to $5 per visit.(Income =$100.)How much better off are you?CVVisits to Health ClubU-Px/Py=-101020BApplication: Calculating the benefit of switching phone companiesJohn has $100 in income. He pays $0.20 per minute and makes 60 minutes of calls....
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This note was uploaded on 09/18/2010 for the course ECON 201 taught by Professor Beomsookim during the Fall '10 term at Korea University.
- Fall '10