INCOME AND SUBSTITUTION EFFECTS - UCLA Economics
INCOME AND SUBSTITUTION EFFECTS
[See Chapter 5 and 6]
1
Two Demand Functions
? Marshallian demand xi(p1,...,pn,m) describes how consumption varies with prices and income.
? Obtained by maximizing utility subject to the budget constraint.
? Hicksian demand hi(p1,...,pn,u) describes how consumption varies with prices and utility.
? Obtained by minimizing expenditure subject to the utility constraint.
2
CHANGES IN INCOME
3
Changes in Income
? An increase in income shifts the budget constraint out in a parallel fashion
? Since p1/p2 does not change, the optimal MRS will stay constant as the worker moves to higher levels of utility.
4
Increase in Income
? If both x1 and x2 increase as income rises, x1 and x2 are normal goods
Quantity of x2
C B A
As income rises, the individual chooses to consume more x1 and x2
U3 U1 U2
Quantity of x1
5
................
................
In order to avoid copyright disputes, this page is only a partial summary.
To fulfill the demand for quickly locating and searching documents.
It is intelligent file search solution for home and business.
Related download
- 2021 pit 1 new mexico personal income t ax return 210180200
- instructions for 2019 pit 1 new mexico personal income tax
- schedule nd 1 fa 2021 tax under 3 year averaging method
- freddie mac reports net income of 4 6 billion
- new jersey gross income tax government of new jersey
- freddie mac reports net income of 1 7 billion and
- 2021 ohio it 1040 hio department of taxation use only
- 1 the e ect of income shocks on consumption in hall s 78
- state of connecticut department of social services client
- income and substitution effects ucla economics
Related searches
- income and balance sheet template
- loan rehabilitation income and expense
- rental income and expense worksheet
- difference between income and revenue
- positive and negative effects of technology
- positive and negative effects of video games
- printable income and expense form
- income and balance sheet examples
- turmeric benefits and side effects dr oz
- positive and negative effects of social media
- positive and negative effects globalization
- positive and negative effects of globalization