Comparative statics Flashcards
1
Q
How is the price offer curve derived?
A
By changing the price of good 1 and plotting the curve through all the optimal points on the different budget constraints
2
Q
How is the income offer curve derived?
A
The same way as the price offer curve but by changing income
3
Q
When are 2 goods gross complements?
A
When demand is decreasing in the price of good 2
4
Q
When are 2 goods gross substitutes?
A
If demand is increasing in the price of good 2
5
Q
How do you find the Marshallian demand functions for given goods?
A
- Use the budget constraint to rearrange for one of the goods
- Find its first order condition and rearrange for the good
- Sub into budget constraint to find other good
- Plug in given numbers to come up with a value
