Unformatted text preview: l, the
Hicksian demand curve is
steeper. • When good X is inferior, the
Marshallian demand curve
is steeper. • The income and substitution
effects reinforce each other
(both are negative) • The income and substitution
effects work in opposite
direction (inc +ve, sub -ve). 29 4.Inflation Indexes
• Inflation the increase in the overall price
level over time.
– nominal price the actual price of a good.
– real price the price adjusted for inflation.
price the price adjusted for inflation • How do we adjust for inflation to calculate
the real price? 30 Inflation Indexes (cont
Inflation Indexes (cont.)
• Consumer Price Index (CPI) – measure the cost of a standard
bundle of goods for use in comparing prices over time.
– We can use the CPI to calculate the real price of a
hamburger over time
hamburger over time.
– In terms of 2010 dollars, the real price of a hamburger
terms of 2010 dollars the real price of hamburger
( sold at ¢15 in 1955) was: CPI for 2010
CPI for 1955 price of a burger 218
31 Calculating Inflation Indexes
Calculating Inflation Indexes
Between period 1 and 2
• Single good x
x • Multiple goods (two goods x and y)
y p y Weighte...
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