Price And Income Changes Flashcards
Draw me substitutes in consumption graph
Draw me price increase of a complement
Draw me complements in consumption
A change in consumers income changes what?
Their optimal consumption choices
What are some comparative statics analysis that we can do?
construct an income-consumption curve linking changes in income and consumption
Which tells us how consumption varies with increased income.
The relationship between income and consumption of a good is called?
The Engel curve
Draw me the Engel Curve
As income goes up.. for a normal good?
Consumption increases
As income goes up… for an inferior good?
Consumption decreases
Price and income changes using calculus
Substitution
Draw me an own price change
Two budget constraints 2 utility curves movement from left constraint to right constraint
When does a budget constraint increase?
When there is an increase in consumer’s income or a fall in the price of a good
How do we derive. A consumers demand curve from own price change graph?
Measure consumption of good at different price.
Draw a curve through the new optimal bundle points
Then use the points of intersection between curve and budget constraint to transfer down onto a demand curve.
Use price of good on the y axis
How is the Engel curve formed?
Derived from indifference curves & budget constraints on income-consumption curve.
Engel curve upward sloping
An income change leads to a shift in ..?
The demand curve (derived from intersection to I-C curve and budget constraint)
