ECON 201 Lecture Notes - Lecture 5: Budget Constraint, Demand Curve, Normal Good
17 Apr 2016
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Document Summary
Deriving demand curves if we hold people"s tastes, their incomes, and the prices of other goods constant, a change in the price of a good will cause a movement along the demand curve. Chapter 5 3 a change in income prompts the consumer to choose a new optimal bundle: the result of the change in income and the new utility maximizing choice can be depicted three different ways. Consumer theory and income elasticities qd, i = % in qd = qd/qd = The shape of the income-consumption curve for two goods tells us the sign of their income elasticities. Price increase holding tastes, other prices, and income constant, an increase in the price of a good has two effects on an individual"s demand: 1. Substitution effect: the change in quantity demanded when the good"s price increases, holding other prices and consumer utility constant. When price increases and the good is normal, the income effect is negative.
