July23
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The document outlines topics to review for an economics midterm on Monday, including homework due Friday, income and substitution effects, production and price-consumption curves, and how the price-consumption curve changes depending on whether goods are necessities, substitutes, or complements. It also notes that for perfect complements, the price-consumption curve does not depend on income or the price of the other good, and provides an example graph.
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July23
- 1. Outline for Wednesday, July 23 Remember Homework due Friday Midterm Monday Review Tuesday Income and substitution effects Production
- 2. Price-consumption curves What if we don’t have a Cobb-Douglas utility? If X is a necessity and we change PX… the PCC is vertical If X and Y are substitutes and we change PX… the PCC slopes down If X and Y are complements and we change PX… the PCC slopes up In particular, for perfect complements… the PCC does not depend on I or PY This is easier to see on graphs of Price and Quantity