4.3
11
4.3 5.2 12.0 2.8 12.0 6.0 4.0 26.7 0 44.5 58.9 p b , $ per unit L 2 (p b = $6) L 3 (p b = $4) 26.7 0 44.5 58.9 e e 1 I 1 I 2 I 3 Beer (b), Gallons per year D 1 , Demand for Beer Price-consumption curve Wine, (W) , Gallons per year BUDGET CONSTRAINT AND INDIFFERENCE CURVE DEMAND CURVE Beer (b), Gallons per year L 1 (p b = $12) E 1 2 E 2 e 3 E 3 GRAPH_1 GRAPH_2
description
GRAPH_1. ear. 12.0. y. , Gallons per. BUDGET CONSTRAINT AND INDIFFERENCE CURVE. Wine, (W). Price-consumption curve. e. 3. 5.2. e. 2. 4.3. 3. I. e. 1. 2.8. 2. I. 1. I. 1. L. (. p. = $12). 2. 3. L. (. p. = $6). L. (. p. = $4). b. b. b. 0. 26.7. 44.5. - PowerPoint PPT Presentation
Transcript of 4.3
4.3
5.2
12.0
2.8
12.0
6.0
4.0
26.70 44.5 58.9
pb, $
per
uni
t
L2 (pb = $6) L3 (pb = $4)
26.70 44.5 58.9
e
e1
I1
I 2
I3
Beer (b), Gallons per year
D1, Demand for Beer
Price-consumption curve
Win
e, (
W) ,
Gal
lons
per
year
BUDGET CONSTRAINT AND INDIFFERENCE CURVE
DEMAND CURVE
Beer (b), Gallons per year
L1 (p b = $12)
E1
2
E2
e3
E3
GRAPH_1
GRAPH_2
Win
e,
Gal
lons
per
year
Income-consumption curve
Engel curve for beer
0
2.8
4.8
7.1
49.138.226.7 Beer, Gallons per year
0
12
0
49.138.226.7 Beer, Gallons per year
49.138.226.7 Beer, Gallons per year
I2I3
I1
Pri
ce o
f be
er,
$ p
er u
nit
Y,
Bud
get
e2
E1
Y1 = $419
Y2 = $628
Y3 = $837
L3
L2
L1
e1
D1D2D3
E1*
E2
E2*
E3
E3*
e3
BUDGET CONSTRAINT AND INDIFFERENCE CURVES
DEMAND CURVE
ENGEL CURVE
GRAPH_3
GRAPH_4
GRAPH_5
Hou
sing
, Squ
are
feet
per
year
Food, Pounds per year
Food normal,housing normal
Food inferior,housing normal
Food normal,housing inferior
b
c
e
a
L1
L2
I
ICC2
ICC1
ICC3
GRAPH_6
Y2
Y1
Y1
Y2
Y3
Y3
L1
Y,
Inco
me
L2
L3
e2
e3
e1
E2
E3
E1
I1
I 2
I 3
Hamburger per year
Income-consumption curve
Hamburger per year
All
oth
er
go
od
s p
er
yea
rEngel curve
BUDGET CONSTRAINT AND INDIFFERENCE CURVES
ENGEL CURVE
GRAPH_7A
GRAPH_7B
e*
L1
L*
L2
e1e2
I1
I2
C, Music CDs Units peryearIncome effect = -3 Substitution effect = -3
6 9 12 20
Total effect = -6
D, M
ovie
DV
Ds,
Uni
ts p
erye
ar
15
= Substitution Effect + Income Effect = -3 + (-3)
NORMAL GOOD CASEGRAPH_8
GIFFEN GOOD CASE IB
aske
tbal
l,T
icke
ts p
erye
ar
Movies, Tickets per year
L1
Total effect
L2
e1
e2
I1
I2
GRAPH_9A
GIFFEN GOOD CASE IIB
aske
tbal
l,T
icke
ts p
erye
ar
Movies, Tickets per year
L1
L*
Income effect
Substitution effect
L2
e1
e2
e*
I1
I2
Total effect
GRAPH_9B
Y, G
oods
per
da y Time constraint
H2 = 12 H1 = 824 0
N2 = 12 N1 = 160 24
H,Work hours per day
N, Leisure hours per day
H2 = 12
N2 = 120H, Work hours per dayN, Leisure hours per day
Demand for leisure
I2
I1 1
–w2
L1
L2
(a) Indifference Curves and Constraints
w, W
age
per
hour
–w1 1
e2Y2
Y1
w1
w2
e1
E2
Demand for leisure
(b) Demand Curve
E1
H1 = 8
N1 = 16
Budget constraint and Indifference curves
GRAPH_10
GRAPH_11
Income and Substitution Effects of a Wage Change
Since income effect is positive, leisure is a normal good.
Y,
Go
od
s p
er
day Time constraint
H2H * H124 0
N2N * N10 24
Substitution effect
Income effect
Total effect
H, Work hours per day
N, Leisure hours per d ay
I2
I1
L2
L*
L1
e2
e1
e*
GRAPH_12
Labor Supply Curve and Inferiority
Y, G
oods
per
day
(a) Labor-Leisure Choice
Time const raint
H2 H3H124 0
H, Work hours per day
E1
E3
E2
L2
I2
I3
I1
L3
L1
e2
e1
e3
w, W
age
per
hour
(b) Supply Curve of Labor
Supply curve of labor
H2H3H1 240
, Work hours per day
At low wages, an increase in the wage causes the worker to work more….
H
but at high wages, an increase in the wage causes the worker to work less….
GRAPH_13
Relationship of Tax Revenue to Tax Rates
