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You don't see, in |
the real world, |
substitution income effects. |
What's interesting is when |
they're opposed to each other. |
That's when it gets |
more interesting. |
And so you see this small |
reduction you get from the |
substitution effect alone. |
By the way, there's |
two handouts. |
Right? |
Jessica, is there |
two handouts? |
There should be. |
There's tables as well. |
I didn't actually get it. |
Jessica, grab me one of those. |
There's tables as |
well as graphs. |
So make sure you have |
both handouts. |
Anyone else need tables? |
Am I the only one who |
didn't get it? |
OK, good. |
So, in principle, the income |
effect could be so large it |
could offset the substitution |
effect. |
There's no reason, |
theoretically, |
that couldn't happen. |
That is, in principle, you could |
derive preferences such |
that the income effect is |
so large it offsets the |
substitution effect-- |
thank you-- |
and the price increase actually |
leads to more |
potatoes being consumed. |
That is what we'd call |
a Giffen good as I |
talked about last time. |
So if you look at the table, |
the top table, this sort of |
lays out our possibilities. |
So look at the top table. |
It sort of maps out the possible |
sets of things that |
can happen. |
So if we have a normal good, |
and the price of that good |
rises, then we know that the |
substitution effect is negative. |
The income effect is negative. |
So the total effect |
is negative. |
Quantity falls. |
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