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AP ECON 2300 F2012 Session 4.doc

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Department
Economics
Course
ECON 2300
Professor
Wai Ming Ho
Semester
Fall

Description
AP ECON 2300 F2012 Session 4Department of EconomicsTopic Demand Reading Chapter 6Properties of Demand FunctionsComparative statics analysis of ordinary demand functionsthe study of how ordinary demands xppy and xppy change as prices p p and income y change11221212OwnPrice ChangesHow does xppy change as p changes holding p and y constant11212Suppose only p increases from p to p and then to p1111p1OrdinaryOwnPrice Changesdemand curveFixed pand yp12for commodity 1p1p1xpxpx11111xp11xpxp1111xp11 2010 W W NortonCompany Inc16 p1OrdinaryOwnPrice Changesdemand curveFixed pand yp12for commodity 1p1pprice1poffer1curvexpxpx11111xp11xpxp1111xp11 2010 W W NortonCompany Inc18The curve containing all the utilitymaximizing bundles traced out as p changes with p and y 12constant is the p price offer curve1Page 1 of 12The plot of the xcoordinate of the p price offer curve against p is the ordinary demand curve 111for commodity 1What does a p priceoffer curve look like for CobbDouglas preferences1TakebaxxxxU2121Then the ordinary demand functions for commodities 1 and 2 areyayppx211pba1ybyppx212pba2Notice that x does not vary with p so the p price offer curve is flat and the ordinary demand 211curve for commodity 1arectangular hyperbolaWhat does a p priceoffer curve look like for a perfectcomplements utility function1minxxxxU2121Then the ordinary demand functions for commodities 1 and 2 areyyppxyppx212211pp21With p and y fixed higher p causes smaller x and x2112y0xxp211p20xxp211Page 2 of 12
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