C4: Demand

Question 1

Price consumption curve

Answer 1

Graph

Question 2

Engle curve

Answer 2

Graph: relation between good 1 and income

Question 3

ICC

Answer 3

Graph: both paths

Question 4

Substitution effect

Answer 4

Hicksian demand.
Change in Q1 when P1 rises, holding U and P of other goods constant

Question 5

Income effect

Answer 5

D-H.
Change in Q1 because of a change in income, holding prices constant

Question 6

Net effect

Answer 6

Marshalian Demand.
Income + substution.

Question 7

When income>substitution

Answer 7

Only griffen goods.
Net -ve
Violates rules of demand.

Question 8

If good inferior

Answer 8

Net effect ambigous, as omcp,e effect +ve

Question 9

Marshalian and Hicksian graph

Answer 9

Draw + moves

Question 10

Expenditure Equation

Answer 10

P1·H1(P’1, P2, U) + P2·H2(P’1,P2,U)

Question 11

Slutsky equation (conditions)

Answer 11

1. For same Ps, Y and U, same bundle minExp. maxU.
   D1(P1,P2,Y)=H1(P1,P2,U)
2. Min Exp. for U level, with P1,P2 is =Y
   D1(P1,P2,Y)=D1(P1,P2,E(P1,P2,U))

Question 12

Slutsky equation: yield of conditions

Answer 12

H1(P1,P2,U) = D1(P1,P2,E(P1,P2,U))

Question 13

Slutsky equation

Answer 13

dD1/dP1 = dH1/dP1 - q1·dD1/dE

(done by differentiating previous equation and rearranging the terms)

Question 14

Slutsky equation: Net effect

Answer 14

dD1/dP1
(Marshalian differential)

Question 15

Slutsky equation: Substitution effect

Answer 15

dH1/dP1
(Hicksian differential)

Question 16

Slutsky equation: Income effect

Answer 16

dD1/dE

Question 17

Slutsky equation In terms of elasticities

Answer 17

PED = SED - OYED
Epsilon = Epsilon* - zeta·YED

(multiplicar terminos anteriores por P1/Q1)