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microeconomic theory ch05

microeconomic theory ch05

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Published by hasan ali

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Published by: hasan ali on Oct 10, 2008
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04/09/2013

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1
Chapter 5
INCOME AND SUBSTITUTIONEFFECTS
Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved.
 
2
Demand Functions
The optimal levels of 
 x 
1
,
 x 
2
,…,
 x 
n
can beexpressed as functions of all prices andincomeThese can be expressed as
n
demandfunctions of the form:
 x 
1
* =
1
(
 p
1
,
 p
2
,…,
 p
n
,
)
 x 
2
* =
2
(
 p
1
,
 p
2
,…,
 p
n
,
)
 x 
n
* =
n
(
 p
1
,
 p
2
,…,
 p
n
,
)
 
3
Demand Functions
If there are only two goods (
 x 
and
), wecan simplify the notation
 x 
* =
 x 
(
 p
 x 
,
 p
,
)
* =
(
 p
 x 
,
 p
,
)
Prices and income are exogenous
 –the individual has no control over theseparameters

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