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demand.6a - Econ 100A Demand Part 1(Chapter 6 Thomas G Koch...

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Econ 100A: Demand, Part 1 (Chapter 6) Thomas G. Koch Winter 2009 Thomas G. Koch Demand (6a) 1(38)
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Clickers Turn on your clicker Hit a button Thomas G. Koch Demand (6a) 2(38)
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A reminder First exam is one week away! Thomas G. Koch Demand (6a) 3(38)
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From last time Developed an algorithm Given preferences (utility function) and a budget constraint Find the demand function for some good. We found x * 1 = x 1 ( p 1 , p 2 , m ) x * 2 = x 2 ( p 1 , p 2 , m ) Thomas G. Koch Demand (6a) 4(38)
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C-D example Used utility function to get MRS Plugged into budget constraint Out we get: x * 1 = m p 1 ( 1 + d c ) Thomas G. Koch Demand (6a) 5(38)
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Comparative Statics Comparative= one vs. another Statics= equilibrium choices As ( p 1 , p 2 , m ) change . . . how do x * 1 , x * 2 change? Thomas G. Koch Demand (6a) 6(38)
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First: Income Some goods: as you get more money . . . you buy more of them. x 1 ( p 1 , p 2 , m ) m > 0 Most goods are like this We call them “normal” goods Thomas G. Koch Demand (6a) 7(38)
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Two normal goods Thomas G. Koch Demand (6a) 8(38)
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Not all goods are normal Inferior goods: x 1 ( p 1 , p 2 , m ) m < 0 As you have more money . . . you buy less. Thomas G. Koch Demand (6a) 9(38)
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Good one: not normal Thomas G. Koch Demand (6a) 10(38)
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Is housing a normal good?
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