topic3_consumer behaviorII

If a normal good the demand reduces negative normal

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

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: come effect : ? depending on whether normal or inferior good – As price goes up, real income reduces. – If a normal good, the demand reduces: negative normal good, the demand reduces negative – If an inferior good, the demand increases: positive Inferior decrease when Income increase is because when people have more purchasing power, they tend to Upgrade them self to normal good from Inferior, e.g. normal good in this case will be branded 22 • Inferior good case (price increase) (p C B Inc. A U0 Sub. Total xCV x1 U1 x0 I / P 0 1 I’ / P1 I0 / P0 Good x 23 Basketball, Ti ckets per year Giffen Giffen Good • L2 – …the income effect is larger and negative (since this is an inferior ti thi good). e2 L1 Even though the substitution though the substitution effect is positive…. I2 L* e1 e* Total effect Substitution effect I1 Movies, Tickets per year Income effect 24 Giffen Giffen Good (Cont.) (Cont • Empirical evidence: potato in Ireland during famine • More recent studies dispute it. Still debatable. • Some individuals did exhibit the Giffen phenomenon in certain income range. in a certain income range. • Battalio,...
View Full Document

This document was uploaded on 03/16/2014 for the course ECONOMICS 106 at Oxford University.

Ask a homework question - tutors are online