topic3_consumer behaviorII

Pcc can be upward sloping flat or downward sloping

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Unformatted text preview: imal choice point on PCC. • PCC can be upward sloping, flat or downward sloping (simplified as a straight line in textbook). (s as 5 • Possible cases cases Good y Good x 6 • Possible cases cases Good y Good x 7 • Possible cases cases Good y Good x 8 1.Comparative Statics (Cont.) Statics (Cont B. Shift of demand curve (Change in Income) – How quantity demand changes as income changes – When I increases to I’ increases to – Holding all other factors constant (price, tastes, other prices other prices…) 9 AOG Income Consumption Curve (ICC) Curve (ICC) U’ U I/Px Price of X I0/Px I’/Px Good X Px D’ D X X’ Good X 10 ICC and the Engel Curve ICC and the Engel Curve • Income Consumption Curve : trace of optimal choices as income changes. • Income effect: how consumption of a good changes as income changes (for good X) income changes (for good X) – normal good vs inferior good • Exercise: Consider three possible cases. Consider three possible cases • Engel Curve : relationship between income and consumption of a good. 11 Income Income Good x 12 Housing, Squarefeet per year Three possible cases of ICC Three possible cases of ICC Food inferior, housing normal L2 ICC 1 a Food normal, no housing normal ICC 2 b L1 e c ICC 3 Food normal, housing inferior I Food, Pounds peryear 13 • When Gail was poor...
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This document was uploaded on 03/16/2014 for the course ECONOMICS 106 at Oxford University.

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