subsgtugon eect x s it is the change in the

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Unformatted text preview: to p ' x , where p > p ' x . x •  Slope of budget line decreases. (make a graph) Intermediate Microeconomics ECON*2310/Annen 4 SubsGtuGon and Income Effect of Price Changes (cont.) •  SubsGtuGon Effect: Δ x . s •  It is the change in the demand for good x when the price changes to p ' x and, at the same Gme, income changes to M '. s •  Formally, !x = x ( p ' x , M ') " x ( px , M ) •  What is M '? •  M ' is the adjusted income so that the consumer achieves the same uGlity as with the old bundle with prices p ' x and p y . Intermediate Microeconomics ECON*2310/Annen 5 SubsGtuGon and Income Effect of Price Changes (cont.) •  Q?: What is the sign of Δ x s if the price for good x goes down? •  If the price goes down, the subsGtuGo...
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