Chapter4

# Total effect the sum of substitution effect and

This preview shows pages 4–13. Sign up to view the full content.

Total Effect: The sum of Substitution Effect and Income Effect.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Income and Substitution Effect of a Normal Good.
Income and Substitution Effects of an Inferior Good.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Individual Consumer’s Demand Curve. An Increase In Price of Good X Effects Normal Good Inferior Good Substitution Effect - - Income Effect - + Total Effect - -/+
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.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
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
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

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
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
Market Demand. Elasticity of Demand. Cases Elasticity Implication η = 0 Perfectly Inelastic Any change in price will leave the quantity demanded unchanged.

This preview has intentionally blurred sections. Sign up to view the full version.

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

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern