Consumer hypothetically remains indifferent between

Info icon This preview shows page 2. Sign up to view the full content.

consumer (hypothetically) remains indifferent between the original situation and the new one For a normal good, the income effect reinforces the substitution effect For an inferior good, the income effect is negative and a lower price does not always lead to an increase in the quantity demanded The lower price has a substitution effect that increases the quantity demanded, but a negative income effect that reduces the demand for the inferior good The income effect works in the opposite direction to and offsets the substitution effect to some degree If the negative income effect exceeded the positive substitution effect, the demand curve would slope upward Changes in prices and incomes change the best affordable choices and change consumption patterns What are work-leisure choices? The more hours we spend on leisure, the smaller is our income The relationship between leisure and income is described by an income-time budget line Gets onto the highest possible indifference curve by making marginal rate of substitution between income and leisure equal to wage rate Leisure is a normal good, so as incomes increase, people demand more leisure The higher wage rate has both a substitution effect and an income effect
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.
  • Spring '08
  • Rush
  • Marginal rate

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    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.

    Student Picture

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

  • Left Quote Icon

    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.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    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.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern