ECON 2GG3 Lecture Notes - Giffen Good, Seat Belt, Relative Price
1 Apr 2013
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Document Summary
Econ 2gg3: in chapter 3 we focused on the consumer"s choice problem and further discussed the comparative statics. We for example,. examined what happens to x1 when its own price, p1 changes: in general economists agree that demand curves are downward sloping-this is referred to as the law of demand. That in order to induce an increased consumption of the good, its price has to be reduced. This is speculation: note that what actually matters is the relative price (p1/p2) and not nominal price. Speculation is one example that shows that relative prices are the ones that matter. If p today=pe=8 then telative price is 1. However, for speculators if price today is say 8 and expected price tomorrow is say 50 then the relative price is 0. 16. A speculator will therefore buy more today expecting price to be higher tomorrow.
