E251.F11.W04.2..R1.Indf.Applications

E251.F11.W04.2..R1.Indf.Applications - Econ 251x Week 4.2...

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Econ 251x Week 4.2 (Revised R1) Individual & Market Demand (Chapter 4) 1
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Income Expansion Path: Normal Good Good Y All other Goods Good X I 3 I 3 Optimum Qty X MRSyx = Px/Py I 2 Q 2 Q 3 I 1 Q 1 Income expansion path 2
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Income Expansion Path: Inferior Good Good Y All other Goods Good X I 3 I 2 Q 2 Q 3 I 1 Q 1 Income expansion path 3
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Derive Demand Good Y All other Goods Good X P 3 I 3 Optimum Qty X MRSyx = Px/Py P 2 Q 2 Q 3 P 1 Q 1 4
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Derive Demand Good Y All other Goods Good X P 3 I 3 Optimum Qty X MRSyx = Px/Py P 2 Q 2 Q 3 P 1 Q 1 Price Consumption curve 5
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The consumer’s level of well-being varies along the demand curve. The prices of other goods are held constant among a demand curve, but the quantities purchased of these other goods can vary. At each point on the demand curve, the consumer’s optimality condition is satisfied: MRS ox = P X /P O where “O” refers to “other goods” (composite good). The demand curve identifies the marginal benefit
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E251.F11.W04.2..R1.Indf.Applications - Econ 251x Week 4.2...

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