Demandchh6 - Chapter Six Comparative Statics of Demand...

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Unformatted text preview: Chapter Six Comparative Statics of Demand Properties of Demand Functions ◆ Comparative statics is the comparison of two different equilibrium states, before and after a change in some parameter. ◆ How do ordinary demands x 1 *(p 1 ,p 2 ,m) and x 2 *(p 1 ,p 2 ,m) change as prices p 1 , p 2 and m change? Properties of Demand Functions ◆ Definitions to remember: ◆ Price-related: Ordinary and Giffen goods ◆ Income related: Normal and inferior goods ◆ Cross-price: Gross complements /substitutes Own-Price Changes ◆ How does x 1 *(p 1 ,p 2 ,m) change as p 1 changes, holding p 2 and m constant? ◆ Suppose only p 1 increases, from p 1 ’ to p 1 ’’ and then to p 1 ’’’. x 1 x 2 p = p ’ Fixed p 2 and m. p 1 x 1 + p 2 x 2 = m Own-Price Changes Own-Price Changes x 1 x 2 p 1 = p 1 ’’ p = p ’ Fixed p 2 and m. p 1 x 1 + p 2 x 2 = m Own-Price Changes x 1 x 2 p 1 = p 1 ’’ p 1 = p 1 ’’’ Fixed p 2 and m. p 1 = p 1 ’ p 1 x 1 + p 2 x 2 = m x 2 x 1 p 1 = p 1 ’ Own-Price Changes Fixed p 2 and y. x 2 x 1 x 1 *(p 1 ’) Own-Price Changes p 1 = p 1 ’ Fixed p 2 and y. x 2 x 1 x 1 *(p 1 ’) p 1 x 1 *(p 1 ’) p 1 ’ x 1 * Own-Price Changes Fixed p 2 and y. p 1 = p 1 ’ x 2 x 1 x 1 *(p 1 ’) p 1 x 1 *(p 1 ’) p 1 ’ p 1 = p 1 ’’ x 1 * Own-Price Changes Fixed p 2 and y. x 2 x 1 x 1 *(p 1 ’) x 1 *(p 1 ’’) p 1 x 1 *(p 1 ’) p 1 ’ p 1 = p 1 ’’ x 1 * Own-Price Changes Fixed p 2 and y. x 2 x 1 x 1 *(p 1 ’) x 1 *(p 1 ’’) p 1 x 1 *(p 1 ’) x 1 *(p 1 ’’) p 1 ’ p 1 ’’ x 1 * Own-Price Changes Fixed p 2 and y. x 2 x 1 x 1 *(p 1 ’) x 1 *(p 1 ’’) p 1 x 1 *(p 1 ’) x 1 *(p 1 ’’) p 1 ’ p 1 ’’ p 1 = p 1 ’’’ x 1 * Own-Price Changes Fixed p 2 and y. x 2 x 1 x 1 *(p 1 ’’’) x 1 *(p 1 ’) x 1 *(p 1 ’’) p 1 x 1 *(p 1 ’) x 1 *(p 1 ’’) p 1 ’ p 1 ’’ p 1 = p 1 ’’’ x 1 * Own-Price Changes Fixed p 2 and y. x 2 x 1 x 1 *(p 1 ’’’) x 1 *(p 1 ’) x 1 *(p 1 ’’) p 1 x 1 *(p 1 ’) x 1 *(p 1 ’’’) x 1 *(p 1 ’’) p 1 ’ p 1 ’’ p 1 ’’’ x 1 * Own-Price Changes Fixed p 2 and y. x 2 x 1 x 1 *(p 1 ’’’) x 1 *(p 1 ’) x 1 *(p...
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This note was uploaded on 11/07/2010 for the course ECO 33358 taught by Professor Mathevet during the Fall '10 term at University of Texas.

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Demandchh6 - Chapter Six Comparative Statics of Demand...

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