Lecturenotes5ECON2310F12

X m x p x m x p x m sign of the income

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Unformatted text preview: n effect is posiGve, if the price goes up, the subsGtuGon effect is negaGve. This is always true. •  Why? Intermediate Microeconomics ECON*2310/Annen 6 2 12 ­09 ­19 SubsGtuGon and Income Effect of Price Changes (cont.) •  Income Effect: ! x . m •  It is the change in the demand for good x when we change income from M to M ' , holding the price of good x fixed at p ' x : •  Formally, !x m = x ( p ' x , M ) " x ( p ' x , M ') • Sign of the Income Effect: •  The income effect associated with a price decrease is posiGve when the good is a normal good •  The income effect associated with a price decrease is negaGve when the good is an inferior good. Intermediate Microeconomics ECON*2310/Annen 7 SubsGtuGon and Income Effect of Price Changes (cont.) •  Total Chan...
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This note was uploaded on 12/21/2012 for the course ECON 2310 taught by Professor Eadomiat during the Fall '10 term at University of Guelph.

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