How Do WAGES AFFECT LABOR SUPPLY

How Do WAGES AFFECT LABOR SUPPLY between two goods. We can use the same theory to analyze how a person decides to allocate time between work and leisure Consider the decision facing Sally, a freelance software designer. Sally is awake for 100 hours week She spends...

DO ALL DEMAND CURVE SLOPE DOWNWARD

DO ALL DEMAND CURVE SLOPE DOWNWARD Normally, when the price of a good rises, people buy less of it. This usual behavior, called the law of demand is reflected in the downward slope of the demand curve As a matter of economic theory, however, demand curves can...

THREE APPLICATIONS

THREE APPLICATIONS Now that we have developed the basic theory of consumer choice, let’s use it to shed light on three questions about how the economy works. These three questions might at first seem unrelated. But because each question involves household...

DERIVING THE DEMAND CURVE

DERIVING THE DEMAND CURVE We have just seen how changes in the price of a good alter the consumer’s budget constraint and, there fore, the quantities of the two goods that he chooses to buy. The demand curve for any good reflects these consumption decisions....

INCOME AND SUBSTITUTION EFFECTS

INCOME AND SUBSTITUTION EFFECTS The impact of a change in the price of a good on consumption can be decomposed into two effects an income effect and a substitution effect. To see what these two effects are, consider how our consumer might respond when he learns that...