FHCE 3150 Chapter Notes - Chapter 4: Complementary Good, Substitute Good, Longrun
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The effects of changes in income map as income varies (preferences and relative prices held constant) Inferior goods one whose quantity demanded falls as income rises: prototypical inferior good is one with several strongly preferred, but more expensive substitutes, ex: hamburger. Inferior goods one for which the quantity demanded rises as its price rises (must be an inferior good and occupy a large share of a consumer"s budget) The total effect is indifference curves) be somewhere along the dotted ling. Equilibrium will tion effect for perfect substitutes substitutes are straight lines. Ics for tion effects of a price increase for salt salt is negligible and salt has no close substitutes. Income effect for tion effect for a price-sensitive good. A price increase for car washes (perfect complements to gasoline) curves would be l shaped bundle must satisfy g = 10w.