section6_1 - Department of Economics University of...

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Department of Economics University of California, Berkeley ECON 100A Spring 2010 - Section 6 GSI: Antonio Rosato 1 Normal vs Inferior Goods We can clasify goods by looking at how consumption changes when the income changes. When the quantity demanded of a good increases as income increases, we say this is a normal good . The other case, of a good for which the quantity demanded decreases as income increases, is an inferior good . Let’s look graphically at what a change in income does to the choices of the consumer, and how that can be traced back to the price-quantity space. We start from one optimal choice given a budget line. Because we are optimistic, we will show what choices this person makes as her income increases. Of course, we could also look at a decrease in income. Income increased, prices did not change. The amount consumed of both goods increased. Income increases again, and the amount consumed of both goods increases again. And again. connecting the optimal choices here traces the income-consumption curve . How do we graph these changes on the price-quantity space? A change in income keep-
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This note was uploaded on 01/19/2011 for the course ECON 100A taught by Professor Woroch during the Spring '08 term at Berkeley.

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section6_1 - Department of Economics University of...

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