ECON10A_8

ECON10A_8 - Announcement Lecture is cancelled on Tuesday...

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 1/4/2008 1 Announcement Lecture is cancelled on Tuesday Feb. 8 Midterm 1 will be handed back at the end of today’s lecture
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 1/4/2008 2 Review
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 1/4/2008 3 Substitutes p 1 X 1 X 2 I/p 1 I/p 2 In other words, p 1 ↑→x 2 p 2 ↑→x 1 Tend not to combine these goods Note: Do not confuse with “perfect” substitutes 0 , 0 1 2 2 1 , , p x p x E E p 1 ↑→x 2
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 1/4/2008 4 Complements p 1 X 1 X 2 I/p 1 I/p 2 In other words, p 1 ↑→x 2 p 2 ↑→x 1 Tend to use these goods together Note: Do not confuse with “perfect” complements 0 , 0 1 2 2 1 , , < < p x p x E E p 1 ↑→x 2
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 1/4/2008 5 Compensated price change – Analysis  Say p 1 (Beer) Must end up on new (red budget line). : But imagine H.H., esq., is compensated enough to make him as happy as before Mom finds the cheapest way to do this. New optimum (X
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ECON10A_8 - Announcement Lecture is cancelled on Tuesday...

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