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1、Chapter 3,Consumers Choice PART B,Consumers Choice,Income Changes Own Price Changes Slutsky Equation,Properties of Demand Functions,Comparative statics analysis of ordinary demand functions - the study of how ordinary demands x1*(p1,p2,y) and x2*(p1,p2,y) change as prices p1, p2 and income y change.
2、,Income Changes,How does the value of x1*(p1,p2,y) change as y changes, holding both p1 and p2 constant?,Income Changes,Fixed p1 and p2.,y y y,Income Changes,Fixed p1 and p2.,y y y,x1,x1,x1,x2,x2,x2,Incomeoffer curve,收入提供曲線,Income Changes,A plot of quantity demanded against income is called an Engel
3、 curve(恩格爾曲線).,Income Changes,Fixed p1 and p2.,y y y,x1,x1,x1,x2,x2,x2,Incomeoffer curve,Income Changes,Fixed p1 and p2.,y y y,x1,x1,x1,x2,x2,x2,Incomeoffer curve,x1*,y,x1,x1,x1,y,y,y,Engelcurve; good 1,Income Changes,Fixed p1 and p2.,y y y,x1,x1,x1,x2,x2,x2,Incomeoffer curve,x1*,x2*,y,y,x1,x1,x1,x2
4、,x2,x2,y,y,y,y,y,y,Engelcurve; good 2,Engelcurve; good 1,Income Changes and Cobb-Douglas Preferences,An example of computing the equations of Engel curves; the Cobb-Douglas case. The ordinary demand equations are,Income Changes and Cobb-Douglas Preferences,Rearranged to isolate y, these are:,Engel c
5、urve for good 1,Engel curve for good 2,Income Changes and Cobb-Douglas Preferences,y,y,x1*,x2*,Engel curvefor good 1,Engel curvefor good 2,Income Changes and Perfectly-Complementary Preferences,Another example of computing the equations of Engel curves; the perfectly-complementary case. The ordinary
6、 demand equations are,Income Changes and Perfectly-Complementary Preferences,Rearranged to isolate y, these are:,Engel curve for good 1,Engel curve for good 2,Income Changes,x1,x2,y y y,Fixed p1 and p2.,Income Changes,x1,x2,y y y,x1,x1,x2,x2,x2,x1,y,Fixed p1 and p2.,Income Changes,x1*,x2*,y,y,x2,x2,
7、x2,y,y,y,y,y,y,x1,x1,x1,Engelcurve; good 2,Engelcurve; good 1,Fixed p1 and p2.,Income Changes and Perfectly-Substitutable Preferences,Another example of computing the equations of Engel curves; the perfectly-substitution case. The ordinary demand equations are,Income Changes and Perfectly-Substituta
8、ble Preferences,Income Changes and Perfectly-Substitutable Preferences,Suppose p1 p2. Then,Income Changes and Perfectly-Substitutable Preferences,Suppose p1 p2. Then,and,Income Changes and Perfectly-Substitutable Preferences,Suppose p1 p2. Then,and,and,Income Changes and Perfectly-Substitutable Pref
9、erences,y,y,x1*,x2*,0,Engel curvefor good 1,Engel curvefor good 2,Income Changes,In every example so far the Engel curves have all been straight lines?Q: Is this true in general? A: No. Engel curves are straight lines if the consumers preferences are homothetic(位似的).,Homotheticity,A consumers prefer
10、ences are homothetic if and only iffor every k 0. That is, the consumers MRS is the same anywhere on a straight line drawn from the origin.,(x1,x2) (y1,y2) (kx1,kx2) (ky1,ky2),p,p,Income Effects - A Nonhomothetic Example,Quasilinear preferences are not homothetic. For example,Quasi-linear Indifferen
11、ce Curves,x2,x1,Each curve is a vertically shifted copy of the others.,Income Changes; Quasilinear Utility,x2,x1,Income Effects,A good for which quantity demanded rises with income is called normal. A normal goods Engel curve is positively sloped. A good for which quantity demanded falls as income i
12、ncreases is called income inferior. An income inferior goods Engel curve is negatively sloped.,Income Changes; Goods1 good 2,Engelcurve; good 1,Income Changes; Good 2 Is Normal, Good 1 Becomes Income Inferior,x2,x1,Income Changes; Good 2 Is Normal, Good 1 Becomes Income Inferior,x2,x1,Income Changes
13、; Good 2 Is Normal, Good 1 Becomes Income Inferior,x2,x1,Income Changes; Good 2 Is Normal, Good 1 Becomes Income Inferior,x2,x1,Income Changes; Good 2 Is Normal, Good 1 Becomes Income Inferior,x2,x1,Income Changes; Good 2 Is Normal, Good 1 Becomes Income Inferior,x2,x1,Incomeoffer curve,Income Chang
14、es; Good 2 Is Normal, Good 1 Becomes Income Inferior,x2,x1,x1*,y,Engel curvefor good 1,Income Changes; Good 2 Is Normal, Good 1 Becomes Income Inferior,x2,x1,x1*,x2*,y,y,Engel curvefor good 2,Engel curvefor good 1,Own-Price Changes,How does x1*(p1,p2,y) change as p1 changes, holding p2 and y constan
15、t? Suppose only p1 increases, from p1 to p1 and then to p1.,Own-Price Changes,x1,x2,p1= p1,p1 = p1,Fixed p2 and y.,p1x1 + p2x2 = y,Own-Price Changes,x1,x2,p1= p1,p1=p1,Fixed p2 and y.,p1 = p1,p1x1 + p2x2 = y,p1 = p1,Own-Price Changes,Fixed p2 and y.,x1*(p1),Own-Price Changes,p1 = p1,Fixed p2 and y.,
16、x1*(p1),p1,x1*(p1),p1,x1*,Own-Price Changes,Fixed p2 and y.,p1 = p1,x1*(p1),p1,x1*(p1),p1,p1 = p1,x1*,Own-Price Changes,Fixed p2 and y.,x1*(p1),x1*(p1),p1,x1*(p1),p1,p1 = p1,x1*,Own-Price Changes,Fixed p2 and y.,x1*(p1),x1*(p1),p1,x1*(p1),x1*(p1),p1,p1,x1*,Own-Price Changes,Fixed p2 and y.,x1*(p1),x
17、1*(p1),p1,x1*(p1),x1*(p1),p1,p1,p1 = p1,x1*,Own-Price Changes,Fixed p2 and y.,x1*(p1),x1*(p1),x1*(p1),p1,x1*(p1),x1*(p1),p1,p1,p1 = p1,x1*,Own-Price Changes,Fixed p2 and y.,x1*(p1),x1*(p1),x1*(p1),p1,x1*(p1),x1*(p1),x1*(p1),p1,p1,p1,x1*,Own-Price Changes,Fixed p2 and y.,x1*(p1),x1*(p1),x1*(p1),p1,x1
18、*(p1),x1*(p1),x1*(p1),p1,p1,p1,x1*,Own-Price Changes,Ordinarydemand curvefor commodity 1,Fixed p2 and y.,x1*(p1),x1*(p1),x1*(p1),p1,x1*(p1),x1*(p1),x1*(p1),p1,p1,p1,x1*,Own-Price Changes,Ordinarydemand curvefor commodity 1,Fixed p2 and y.,x1*(p1),x1*(p1),x1*(p1),p1,x1*(p1),x1*(p1),x1*(p1),p1,p1,p1,x
19、1*,Own-Price Changes,Ordinarydemand curvefor commodity 1,p1 price offer curve,Fixed p2 and y.,Own-Price Changes,The curve containing all the utility-maximizing bundles traced out as p1 changes, with p2 and y constant, is the p1- price offer curve. The plot of the x1-coordinate of the p1- price offer
20、 curve against p1 is the ordinary demand curve for commodity 1.,Own-Price Changes,What does a p1 price-offer curve look like for Cobb-Douglas preferences?,Own-Price Changes,What does a p1 price-offer curve look like for Cobb-Douglas preferences? TakeThen the ordinary demand functions for commodities
21、 1 and 2 are,Own-Price Changes,and,Notice that x2* does not vary with p1 so thep1 price offer curve is,Own-Price Changes,and,Notice that x2* does not vary with p1 so thep1 price offer curve is flat,Own-Price Changes,and,Notice that x2* does not vary with p1 so thep1 price offer curve is flat and the
22、 ordinarydemand curve for commodity 1 is a,Own-Price Changes,and,Notice that x2* does not vary with p1 so thep1 price offer curve is flat and the ordinarydemand curve for commodity 1 is a rectangular hyperbola 直角雙曲線.,x1*(p1),x1*(p1),x1*(p1),Own-Price Changes,Fixed p2 and y.,x1*(p1),x1*(p1),x1*(p1),p
23、1,x1*,Own-Price Changes,Ordinarydemand curvefor commodity 1 is,Fixed p2 and y.,Own-Price Changes,What does a p1 price-offer curve look like for a perfect-complements utility function?,Own-Price Changes,What does a p1 price-offer curve look like for a perfect-complements utility function?,Then the or
24、dinary demand functionsfor commodities 1 and 2 are,Own-Price Changes,Own-Price Changes,With p2 and y fixed, higher p1 causessmaller x1* and x2*.,Own-Price Changes,With p2 and y fixed, higher p1 causessmaller x1* and x2*.,As,Own-Price Changes,With p2 and y fixed, higher p1 causessmaller x1* and x2*.,
25、As,As,Fixed p2 and y.,Own-Price Changes,x1,x2,p1,x1*,Fixed p2 and y.,Own-Price Changes,x1,x2,p1,p1 = p1,y/p2,p1,x1*,Fixed p2 and y.,Own-Price Changes,x1,x2,p1,p1,p1 = p1,y/p2,p1,x1*,Fixed p2 and y.,Own-Price Changes,x1,x2,p1,p1,p1,p1 = p1,y/p2,p1,x1*,Ordinarydemand curvefor commodity 1 is,Fixed p2 a
26、nd y.,Own-Price Changes,x1,x2,p1,p1,p1,y/p2,Own-Price Changes,What does a p1 price-offer curve look like for a perfect-substitutes utility function?,Then the ordinary demand functionsfor commodities 1 and 2 are,Own-Price Changes,and,Fixed p2 and y.,Own-Price Changes,x2,x1,Fixed p2 and y.,p1 = p1 p2,
27、Fixed p2 and y.,Own-Price Changes,x2,x1,p1,x1*,Fixed p2 and y.,p1,p1 = p1 p2,Fixed p2 and y.,Own-Price Changes,x2,x1,p1,x1*,Fixed p2 and y.,p1,p1 = p1 = p2,Fixed p2 and y.,Own-Price Changes,x2,x1,p1,x1*,Fixed p2 and y.,p1,p1 = p1 = p2,Fixed p2 and y.,Own-Price Changes,x2,x1,p1,x1*,Fixed p2 and y.,p1
28、,p1 = p1 = p2,Fixed p2 and y.,Own-Price Changes,x2,x1,p1,x1*,Fixed p2 and y.,p1,p1 = p1 = p2,p2 = p1,Fixed p2 and y.,Own-Price Changes,x2,x1,p1,x1*,Fixed p2 and y.,p1,p1,p2 = p1,Fixed p2 and y.,Own-Price Changes,x2,x1,p1,x1*,Fixed p2 and y.,p1,p2 = p1,p1,p1 price offer curve,Ordinarydemand curvefor
29、commodity 1,Own-Price Changes,Usually we ask “Given the price for commodity 1 what is the quantity demanded of commodity 1?” But we could also ask the inverse question “At what price for commodity 1 would a given quantity of commodity 1 be demanded?”,Own-Price Changes,p1,x1*,p1,Given p1, what quanti
30、ty isdemanded of commodity 1?Answer: x1 units.,x1,Own-Price Changes,p1,x1*,p1,x1,Given p1, what quantity isdemanded of commodity 1?Answer: x1 units.,The inverse question is:Given x1 units are demanded, what is the price of commodity 1? Answer: p1,Own-Price Changes,Taking quantity demanded as given a
31、nd then asking what must be price describes the inverse demand function (反需求函數(shù))of a commodity.,Own-Price Changes,A Cobb-Douglas example:,is the ordinary demand function and,is the inverse demand function.,Ordinary Goods,A good is called ordinary if the quantity demanded of it always increases as its
32、 own price decreases.,Ordinary Goods,Fixed p2 and y.,x1,x2,Ordinary Goods,Fixed p2 and y.,x1,x2,p1 price offer curve,Ordinary Goods,Fixed p2 and y.,x1,x2,p1 price offer curve,x1*,Downward-sloping demand curve,Good 1 isordinary,p1,Giffen Goods,If, for some values of its own price, the quantity demand
33、ed of a good rises as its own-price increases then the good is called Giffen.,Ordinary Goods,Fixed p2 and y.,x1,x2,Ordinary Goods,Fixed p2 and y.,x1,x2,p1 price offer curve,Ordinary Goods,Fixed p2 and y.,x1,x2,p1 price offer curve,x1*,Demand curve has a positively sloped part,Good 1 isGiffen,p1,Effe
34、cts of a Price Change,What happens when a commoditys price decreases? Substitution effect: the commodity is relatively cheaper, so consumers substitute it for now relatively more expensive other commodities.,Effects of a Price Change,Income effect: the consumers budget of $y can purchase more than b
35、efore, as if the consumers income rose, with consequent income effects on quantities demanded.,Effects of a Price Change,x2,x1,Original choice,Consumers budget is $y.,Effects of a Price Change,x1,Lower price for commodity 1 pivots the constraint outwards.,Consumers budget is $y.,x2,Effects of a Pric
36、e Change,x1,Lower price for commodity 1 pivots the constraint outwards.,Consumers budget is $y.,x2,Now only $y are needed to buy the original bundle at the new prices, as if the consumers income has increased by $y - $y.,Effects of a Price Change,Changes to quantities demanded due to this extra inco
37、me are the income effect of the price change.,Effects of a Price Change,Slutsky discovered that changes to demand from a price change are always the sum of a pure substitution effect and an income effect.,Real Income Changes,Slutsky asserted that if, at the new prices, less income is needed to buy t
38、he original bundle then “real income” is increased more income is needed to buy the original bundle then “real income” is decreased,Real Income Changes,x1,x2,Original budget constraint and choice,Real Income Changes,x1,x2,Original budget constraint and choice,New budget constraint,Real Income Change
39、s,x1,x2,Original budget constraint and choice,New budget constraint; real income has risen,Real Income Changes,x1,x2,Original budget constraint and choice,Real Income Changes,x1,x2,Original budget constraint and choice,New budget constraint,Real Income Changes,x1,x2,Original budget constraint and ch
40、oice,New budget constraint; real income has fallen,Pure Substitution Effect,Slutsky isolated the change in demand due only to the change in relative prices by asking “What is the change in demand when the consumers income is adjusted so that, at the new prices, she can only just buy the original bun
41、dle?”,Pure Substitution Effect Only,x2,x1,x2,x1,Pure Substitution Effect Only,x2,x1,x2,x1,Pure Substitution Effect Only,x2,x1,x2,x1,Pure Substitution Effect Only,x2,x1,x2,x2,x1,x1,Pure Substitution Effect Only,x2,x1,x2,x2,x1,x1,Pure Substitution Effect Only,x2,x1,x2,x2,x1,x1,Lower p1 makes good 1 re
42、lativelycheaper and causes a substitutionfrom good 2 to good 1.,Pure Substitution Effect Only,x2,x1,x2,x2,x1,x1,Lower p1 makes good 1 relativelycheaper and causes a substitutionfrom good 2 to good 1. (x1,x2) (x1,x2) is the pure substitution effect.,And Now The Income Effect,x2,x1,x2,x2,x1,x1,(x1,x2)
43、,And Now The Income Effect,x2,x1,x2,x2,x1,x1,(x1,x2),The income effect is (x1,x2) (x1,x2).,The Overall Change in Demand,x2,x1,x2,x2,x1,x1,(x1,x2),The change to demand due to lower p1 is the sum of the income and substitution effects, (x1,x2) (x1,x2).,Slutskys Effects for Normal Goods,Most goods are
44、normal (i.e. demand increases with income). The substitution and income effects reinforce each other when a normal goods own price changes.,Slutskys Effects for Normal Goods,x2,x1,x2,x2,x1,x1,(x1,x2),Good 1 is normal becausehigher income increasesdemand,x2,x1,x2,x2,x1,x1,(x1,x2),Good 1 is normal bec
45、ausehigher income increasesdemand, so the income and substitution effects reinforce each other.,Slutskys Effects for Normal Goods,Since both the substitution and income effects increase demand when own-price falls, a normal goods ordinary demand curve slopes down. The Law of Downward-Sloping Demand
46、therefore always applies to normal goods.,Slutskys Effects for Normal Goods,Slutskys Effects for Income-Inferior Goods,Some goods are income-inferior (i.e. demand is reduced by higher income). The substitution and income effects oppose each other when an income-inferior goods own price changes.,Slut
47、skys Effects for Income-Inferior Goods,x2,x1,x2,x1,Slutskys Effects for Income-Inferior Goods,x2,x1,x2,x1,Slutskys Effects for Income-Inferior Goods,x2,x1,x2,x2,x1,x1,Slutskys Effects for Income-Inferior Goods,x2,x1,x2,x2,x1,x1,The pure substitution effect is as fora normal good. But, .,Slutskys Effects for Income-Inferior Goods,x2,x1,x2,x2,x1,x1,(x1,x2),The pure substitution effect is as for a normal good. But, the income effect is in the opposite direction.,Slutskys Effects for Income-Inferior Goods,x2,x1,x2,x2,x1,x1,
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