{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Chap006 - Chapter 06 From Demand to Welfare Chapter 6 From...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 06 - From Demand to Welfare Chapter 6: From Demand to Welfare Main Concepts and Learning Objectives This chapter focuses on the impacts of price changes on consumer decisions and consumer utility. This includes income and substitution effects of a price change, the impact of the change in price of a single good on utility, and construction of an index to measure the impacts of multiple price changes on utility. These concepts are used to analyze labor supply decisions and income-compensated demand curves. Students who master the material presented in this chapter will able to: Use a budget line / indifference curve diagram to illustrate the income and substitution effects of a price change Measure the impacts of compensated and uncompensated price changes using either a budget line / indifference curve diagram or a demand curve Analyze the income and substitution effects of a change in wages Explain sources of bias in the consumer price index. Multiple Choice Quiz (10 questions) covering main points: 1. An uncompensated price change a. requires compensation payments by the seller. b. is not the same as the price changes we normally observe. That is why compensation is needed. c. is the same as the price changes we normally observe. There is no addition or subtraction to income to ensure that the price change does not alter consumer utility. d. requires compensation payments by the buyer. 2. The substitution effect of a price change 3. The income effect involves: 4. For a normal good, the income and substitution effect work a. in the same direction. b. in opposite direction. c. either a or b is possible 6-1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Chapter 06 - From Demand to Welfare 5. Application 6.1 states that the elasticity of demand for shochu 8.81. This implies that shochu 6. Compensating variation is the amount of money that a. exactly offsets the effect of a price change, and keeps the consumer on the same indifference curve. b. measures the variation of income across individuals. c. none of the above
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}