ECON 100A Lecture Notes - Lecture 16: Engel Curve, Budget Constraint, Normal Good
Document Summary
Perfect substitutes: u (q1, q2) = q1 + q2, p1 < p2, q1 = u / p1, i = p1 q1, graphical representation of engel curve. Perfect complements: u (q1, q2) = min (q1, q2, q1 = i / (p1 + p2, i = (p1 + p2) q1, graphical representation of engel curve. Cobb-douglas: u (q1, q2) = q1, q1 = i / p1, i = p1 / * q1, graphical representation of engel curve. Method 2: using engel curve for good 1. Initially use all on q1, until q1 is maxed out. Then q2 = i / p2, where i = (original i) p1q1. E q, i = % q / % i = (q2 q1) / q1 / (i2 i1) / i1. E q, i = q / i * i / q. E q, i = / p1 * i / ( i / p1) = 1. E q, i < 0 inferior goods.
