微观济学课件2003秋ch08.pdfVIP

What We Do Here? Until now, consumer theory seemed to have no particular content: Demand could go up or down when e reased Demand could go up or down when a price reased. If a theory doesn’t restrict observed behavior in some fashion it isn’t much of a theory. A model that is consistent with all behavior has no real content. What We Do Here? We want a way to pose the effect of a price change into “simpler” pieces. That’s what ysis is all about Break up into simple pieces to determine behavior of whole What We Do Here? We will break up price change into a pivot and a shift –two hypothetical changes Changes in demand due to pivot is the substitution effect. Changes in demand due to shift is the e effect. 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 – e effect: the consumer’s budget of $y can purchase more than before, as if the consumer’s e rose, with consequent e effects on ties demanded. 08.01 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 consumer’s e is adjusted so that, at the new prices, she can only just buy the original bundle?” Pure Substitution Effect Only x2 x ’ 2 x ’ x 1 1 Pure Substitution Effect Only x2