yet: first edit 140904R Summarized from Greg Mankiw’s Principles of Economics PART 7 Topics For Further Study Chapter 21 of 36 – The Theory of Consumer Choice … section 13 … did first summary edit of this new section today, will re-edit and re-post in sequence later … Figure 10 here again We can interpret the substitution and income effects using indifference curves • the substitution effect is the change in consumption that results from being at a point along an indifference curve with a different marginal rate of substitution • the income effect is the change in consumption that results from the movement to a higher indifference curve Figure 10 shows how a consumer’s decision is simultaneously affected by both the substitution effect and the income effect. When the price of Pepsi falls • the consumer moves from the initial optimum, point A • to the new optimum, point C We can view this change as occurring in two steps. First, the consumer moves along the initial indifference curve, I1, from point A to point B • the consumer is equally happy at these two points • but at point B, the marginal rate of substitution reflects the new relative price • the dashed line through point B reflects the new relative price by being parallel to the new budget constraint Second, the consumer shifts to the higher indifference curve I2, moving from point B to point C • even though point B and point C are on different indifference curves • they have the same marginal rate of substitution • the slope of the indifference curve I1 at point B equals the slope of the indifference curve I2 at point C Although the consumer never actually chooses point B • because the substitution and income effects happen simultaneously • this hypothetical point B is useful to clarify the two effects that determine the consumers decision The movement from point A to point B • represents a pure change in the marginal rate of substitution • without any change in the consumers welfare • shows the substitution effect The movement from point B to point C • represents a pure change in welfare • without any change in the marginal rate of substitution • shows the income effect … the consumer never chooses point B 消費者 は 点B をネバー 選択 shōhisha wa ten B o nebā sentaku しょうひしゃ は てん B を ネバー せんたく ネバー … nebā … never 選択 … せんたく … choose
Posted on: Thu, 04 Sep 2014 13:23:27 +0000
Trending Topics
Recently Viewed Topics
© 2015