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WE DO NOT KNOW IF THE CONSUMER WILL REMAIN A NET SUPPLIER OR WILL BECOME A NET DEMANDER OF GOOD 1 AT NEW PRICES

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(1)

PHYSICAL ENDOWMENT PRICES

INCOME DEPENDS ON PRICES

LOWER PRICE OF GOOD 1 CAUSES A LOWER MONEY INCOME

MONEY INCOME CHANGE HAS THE SIGN OF THE

PRICE CHANGE

(2)

THE CONSUMER AT PRICES p1, p2 HAS POSITIVE NET DEMAND OF GOOD 1

x = choice at prices p1, p2

= CHOICE AT PRICES p1', p2 WE CAN APPLY WARP AND CONCLUDE:

(3)

X = CHOICE AT p1, p2

CHOICE AT PRICES p1', p2 IS

negative net demand (positive net supply) of good 1

WE CAN APPLY WARP AND CONCLUDE:

POSITIVE NET SUPPLY AT PRICES p1', p2 AND

WELFARE IS HIGHER THAN IT WAS AT PRICES p1, p2

(4)
(5)
(6)

IF CONSUMER HAS POSITIVE NET SUPPLY

AT PRICES p1, p2 AND THE PRICE OF GOOD 1

FALLS, WE CANNOT APPLY WARP. WE DO NOT KNOW IF THE CONSUMER WILL REMAIN A NET SUPPLIER OR WILL BECOME A NET DEMANDER OF GOOD 1

AT NEW PRICES.

IF CONSUMER HAS POSITIVE NET DEMAND AT PRICES p1, p2 AND THE PRICE OF GOOD 1

INCREASES, WE CANNOT APPLY WARP. WE DO NOT KNOW IF THE CONSUMER WILL REMAIN A NET DEMANDER OR

WILL BECOME A NET SUPPLIER OF GOOD 1 AT NEW PRICES.

(7)

NET SUPPLY CURVE

GROSS

DEMAND NET

SUPPLY NET

DEMAND

(8)
(9)

PP = purchasing power

X1 is an ordinary good

X1 may not be ordinary good

(10)

BUDGET CONSTRAINT:

LABOUR INCOME consumption expenditure

(11)

slope = - w

IF gross demand R < R then:

NET DEMAND OF LEISURE IS NEGATIVE (NET SUPPLY OF LABOUR IS POSITIVE):

IN CASE OF A CHANGE IN WAGE W

REST MAY NOT BEHAVE AS ORDINARY GOOD gross demand

of leisure

net supply of labour

--

net demand of rest = slope of budget line =

Riferimenti

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