Lecture Notes for ECON 302 - Inter Microeconomic Theory at Illinois (UIUC)

Notes Information

Material Type:Class Note
Class:ECON 302 - Inter Microeconomic Theory
University:University of Illinois - Urbana-Champaign
Term:Fall 2007
  • Individual Demand
  • Observation
  • Consumption
  • Substituting
  • The Independent
  • Normal Goods
  • Substitution
  • Substitution Effect
  • Complements
  • Preferences
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Sample Document Text

LECTURES 22-23 INCOME AND PRICE EFFECTS QUESTIONS, ISSUES AND TOPICS TO BE COVERED: - Someone gets a raise. How is the consumption of different goods affected? Is it affected equally? Could the consumption of some goods actually go down? - The price of a good goes up. What happens to the demand for that good? What determines the degree to which it will respond to the price change? - How can one compare the standard of living between locations where both income and prices differ? SKILLS TO BE MASTERED: - Solve parametric models of utility maximization to obtain expressions for the consumer demand as a function of prices and income. - Plot the inverse demand functions of consumers. - Plot Engel curves. - Be able to separate income from substitution effects. - Identify the effect of changes in preferences. CHANGES IN INCOME Effects of an income change on the budget set. A. A change in income shifts the individual's budget line in (if it is an income decrease) or out (if it is an i...

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