Total effect the sum of substitution effect and

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Total Effect: The sum of Substitution Effect and Income Effect.
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Income and Substitution Effect of a Normal Good.
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Income and Substitution Effects of an Inferior Good.
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Individual Consumer’s Demand Curve. An Increase In Price of Good X Effects Normal Good Inferior Good Substitution Effect - - Income Effect - + Total Effect - -/+
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Individual Consumer’s Demand Curve. The Effects of Changes in Income (holding prices constant). The income consumption curve (ICC): Ceteris paribus, in good X, Y domain, the ICC is the set of optimal bundles traced on an indifference map as money income varies. In Income and Quantity domain, the ICC is referred to as the Engel Curve. Normal Good: Upward sloping Engel Curve. Inferior Good: Downward sloping Engel Curve.
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Market Demand. Aggregating individual demand curves. Consider the case where we have 2 individuals in the market. Each individual has his/her own demand for good X. Suppose (D 1 ): P = 10 X 1 => X 1 = 10 P. (D 2 ):P = 10 2X 2 => X 2 = 5 1/2P. X Agg = X 1 + X 2 = 15 3/2P. => (D): P = 10 2/3 X Agg
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Market Demand 0 2 4 6 8 10 12 0 2 4 6 8 10 (D1) 0 2 4 6 8 10 12 0 1 2 3 4 5 (D2) 0.0 2.0 4.0 6.0 8.0 10.0 12.0 0 2 4 6 8 10 12 14 D
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Market Demand Price Elasticity of Demand. A percentage change in the quantity of a good demanded that results from a 1% change in its own price. or
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Market Demand. Elasticity of Demand. Cases Elasticity Implication η = 0 Perfectly Inelastic Any change in price will leave the quantity demanded unchanged.
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