《微观经济学》清华大学课件_8.pdf

Chapter Eight Slutsky Equation What Are We Doing in this Chapter?  We take a further look at the comparative statics of demand function with respect to prices; We divide the changes in demand due to price changes into two effects: – Substitution effect; – Income effect? Why? Deeper economic intuition. Effects of a Price Change What happens when a commodity’s 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 consumer’s budget of $y can purchase more than before, as if the consumer’s income rose, with consequent income effects on quantities demanded. Effects of a Price Change Consumer’s budget is $y. x 2 Lower price for commodity 1 y pivots the constraint outwards. p2 x 1 Effects of a Price Change Consumer’s budget is $y. x 2 Lower price for commodity 1 y pivots the constraint outwards. p2 Now only $y’ are needed to buy the y original bundle at the new prices, as if the consumer’s income has p2 increased by $y - $y’. x 1 The Idea behind the Slutsky Equation Divide the total changes to demand from a price change into 1) pure substitution effect; 2) an income effect. Pure Substitution Effect “What is the change in demand when the consumer’s income is adjusted so that, at the new prices, she can only just buy the or