ECON1002 Lecture Notes - Lecture 2: Red Meat, Inferior Good, Disposable And Discretionary Income

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champagnespider587

10 Mar 2019

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T he income effect: is the change in demand for a good or service caused by a change in a consumer"s purchasing power resulting from a change in real income. Changes in purchasing power can result from income changes, price changes or currency fluctuations. Price decreases increase purchasing power, allowing a consumer to buy a better product or more of the same product for the same price. However, different goods and services experience these changes in different ways. for example, Normal goods are those whose demand increases as people"s incomes and purchasing power rise. Inferior goods are goods for which demand declines as consumers real incomes rise. This occurs when a good has more costly substitutes that see an increase in demand as the society"s economy improves. However, the income effect results in consumers spending more or less in general and does not necessarily indicate that they will buy higher or lower value goods.

Related Questions

The demand for goods varies based on the change in the price of the goods. For example, if oatmeal costs less than cereal, consumers would buy more oatmeal for breakfast. However, the demand for inexpensive goods and services is not significantly affected by price fluctuations. Similarly, the demand for essential goods that have no substitute on the market rarely changes with a price change. Address the following: Identify a product that you regularly consume, such as soft drinks or particular snack food. Describe how your demand (consumption) will be impacted by a 25% price increase. Conversely, how will your demand (consumption) change if the price drops by 25%? Is your demand for this product elastic or inelastic? Explain why.

jadeherring641

The income effect of an increase in the price of salmon

a. is the change in the demand for salmon when income increases.

b. refers to the relative price effect - salmon is more expensive compared to other types of fish - which causes the consumer to buy less salmon.

c. refers to the effect on a consumer's purchasing power, which causes the consumer to buy less salmon, holding all other factors constant.

d. is the change in the demand for other types of fish, say trout, that results from a decrease in purchasing power.

raspberrygoat38

budget line

marginal utility

complete property of preferences

market demand

consumption bundle

substitution effect

Giffen good

total effect

income effect

transitive property of preferences

indifference curves

utility

the marginal rate of substitution

utility function

1.	_____	The satisfaction or benefit that consumers receive from consuming goods or services.
2.	________________ _	A particular combination of specific quantities of goods or services
3.	________________ _	Consumers can rank all conceivable bundles of goods or services
4.	_____	If A is preferred to B, and B is preferred to C, then A is always preferred to C.
5.	_____	Equation showing a consumerâs perception of the total utility forthcoming from consuming each bundle of goods and services.
6.	_____	A set of consumption bundles each and every one of which provides a consumer with exactly the same level of total utility.
7.	_____	The number of units of Y that must be given up for total utility to remain the same when one more unit of X is consumed.
8.	_____	The addition to total utility attributable to consuming one more unit of a good, holding the consumption of all other goods constant.
9.	_____	The line showing all bundles of goods that can be purchased at given prices if the entire income is spent.
10.	_____	The change in the consumption of a good that would result if the consumer remained on the original indifference curve after the price of the good changes.
11.	_____	The change in consumption of goods results strictly from the change in purchasing power after the price of a good changes.
12.	________________ _	The sum of the substitution and income effects.
13.	_____	A good for which quantity demanded varies directly with price, causing an upward sloping demand curve.
14.	_____	A list of prices and the corresponding quantity consumers are willing and able to purchase at each price.

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ECON1002 Lecture Notes - Lecture 2: Red Meat, Inferior Good, Disposable And Discretionary Income

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