microbook_3e-page66

microbook_3e-page66 - o and good X is a gross substitute...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Gross Substitutes & Gross Complements If goods X and Y are both normal goods and if the price of good X falls, the income effect and the substitution effect would both encourage the consumer to buy more of good X, but the gross (combined) effect on good Y is ambiguous. If the price of good X falls and if Y is a normal good, then: x the income effect encourages the consumer to buy more of good Y x the substitution effect encourages the consumer to buy less of good Y So the gross effect depends on which effect is larger. x If the substitution effect is larger than the income effect, then: o the consumer will buy less of good Y
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: o and good X is a gross substitute for good Y. x If the income effect is larger than the substitution effect, then: o the consumer will buy more of good Y o and good X is a gross complement to good Y. Household Choice in Input Markets As in output markets, households face constrained choices in input markets. Households basic decisions in input markets 1. Whether to work 2. How much to work 3. What kind of a job to work at These decisions are affected by: 1. The availability of jobs 2. Market wage rates 3. The skill possessed by the household Page 66...
View Full Document

This note was uploaded on 12/29/2011 for the course ECO 311 taught by Professor Willis during the Fall '10 term at SUNY Stony Brook.

Ask a homework question - tutors are online