class 7 uncertainty post truncated B_W

# class 7 uncertainty post truncated B_W - Class Class 7...

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lass 7 Class 7 easuring Welfare Measuring Welfare hoice under Uncertainty Choice under Uncertainty

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What we did last time ecomposition: ± Decomposition: ± The “Substitution Effect” ± he “Income Effect” The Income Effect ± Putting it all together pplication: Labor Market ± Application: Labor Market ± Measuring Welfare ± Midterm
Slutski Decomposition () ) E UHU q 2 11 1 ( , ( , )) ( , ) D p E p UH p U Substitution E Income E Total Effect 1 1 * ε θξ ≡−

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Labor Supply Other Goods Substitution E w Leisure Income E Total Effect Lb S l H: Labor Supply
Consumer Surplus Consumer Surplus CS at p = 1.5 : 2.5 + 1.5 + 0.5 = 4.5 Price 4 CS at p= 1.0 : 3 +2 + 1 = 6 Steve’s surplus increases by \$1.5 due to the 3 2 price decrease. 1 1.5 Number of DVDs Suppose Steve’s mother would buy him 5 DVDs for \$11 – is this a good idea?

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Consumer Surplus Consumer Surplus Suppose the government would buy the Price 4 D (p) copyright for the DVD for \$7Million and distribute it free of charge.
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class 7 uncertainty post truncated B_W - Class Class 7...

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