ECO100Y5 Lecture Notes - Lecture 5: Demand Curve, Inferior Good, Opportunity Cost
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ECO100Y5 Full Course Notes
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Income effects: optimal demand for good x depends positively on income m for the case of normal goods (refer to figure 6a-5 in textbook) Own-price effects: optimal demand for good x depends negatively on its px(demand curves slope downwards) unless the income effect dominates the substitution effect(figure 6a-8 and figure 6-3 in text) If substitution effect dominates demand, income goes up. Suppose the price of good falls by 75% Plot points a(2,4) (b(4,2) c(8,4: cost = 8 u=8, cbl 1x+2y = 8(horizontal intercept) Put these points into a scenario when the person is buying good x, Key idea(u=xy) restrictive utility function c1. Examples i. e. potatoes were an inferior good, irish people were poor and use to eat these potatoes. The price of potatoes went up and there was a substitution effect. To this the irish peasants said the opportunity cost is higher, this makes us so poor.
