# Questions tagged [income-effect]

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### Utility function with two goods with declining spending share on one good

My question is somewhat related to utility functions with inferior goods (some answers here). Suppose there are two goods, $a, b$. I am looking for a utility function such that it satisfies the usual ...
• 1,819
30 views

### Increase in income in an economy would increase

Increase in income in an economy would increase the following except Consumption Savings Imports Exports
• 1
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### Could Gaza have been "one of the wealthiest states on the Mediterranean"?

According to this transcript, (I don't have access to the original interview), Robert Kennedy told Krystal Ball: The international aid agencies have given Hamas, have given Gaza more than 10 times ...
• 103
32 views

### the income elasticity at the mean values

What is the formula of the income elasticity at the mean values? I have two variables, I is income and C is consumption. And I have 10 observations (sample size) Regresison equation $$C = a + bI$$ ...
• 192
1 vote
132 views

### Income effect in perfect substitutes if the already cheaper good becomes more cheaper?

Consider a simple utility function U(x,y) = x+y such that Px < Py (which means only x is being consumed at optimal point, a corner solution). In this case, assume Px falls further. Now won't the ...
• 143
267 views

### Can the income and/or substitution shift the demand curve?

As the question says, can either the income or substitution effect cause the demand curve to shift? I understand that both income and substitution effects are key determinants of the shape of the ...
• 581
1 vote
209 views

### Using Slutsky method to understand substitution and income effect for luxury goods

If both goods are luxury goods, such as Channel vs Dior bags, how can you graph the substitution and income effect using the Slutsky method when the price of Channel bags fall? What I've tried: ...
1 vote
139 views

### Income and Substition Effect: Assumptions: Normality vs. Inferiority of Goods

A question concerning the income and substitution effect when the wage changes Let us assume that the substitution effect leads to more less leisure as the relative price of leasure increases, and ...
• 11
422 views

### Income and substitution effect: why MRS=relative prices?

I'm trying to understand how to solve an exercise about income and substitution effects. I got the theory, I guess, but can't get the maths. One of the steps would be to put in a system the equation ...
276 views

### Logarithmic utility and and cancellation of income and sub effects

From these notes by Per Krussel on page 16, the author writes that "With logarithmic utility, a relative price change between two goods will make the consumption of the favored good go up ...
• 321
434 views

### Hick's and Slutsky's approaches lead to different income effects. Why?

Suppose a cup of coffee and a plate of beans are sold at € 1 and € 3 respectively during the winter. In summer, the government decides to remove the subsidy on coffee and its new price per cup goes up ...
• 87
1 vote
309 views

### Are there estimates of how much salaries are affected by income tax rates?

A few years ago I've asked Why are some wage taxes officially paid by the employer, even though they're really paid by the employee? where @Relaxed mentioned the following: Arguably, the notion that ...
• 518
76 views

### How is Elon Musk's free Tesla charge a sustainable business model?

I came across this video, where Elon says charging a Tesla car at Tesla supercharge station is free and will be free always How is this a sustainable business model? Where will the money for ...
• 101
1 vote
742 views

### Is Hicksian always steeper than Marshallian?

The compensated demand curve eliminates income effects. It reflects only substitution effects. Given that the Marshallian demand curve reflects income effects, doesn't this mean it is always more ...
• 309
631 views

### Calculate income and sustitution effect from utility funcion

Utility function $U(x_1 , x_2) = x_1 + 4 * x_2$ $p_1 = 3, p_2 = 8, m =120$ $p_2$ changes from $8$ to $10$ How can I calculate the income and substitution effect. I first thought about calculating ...
1 vote
79 views

### How to calculate substitution and income effect when only 1 bundle is given?

I was given information of a consumer that initially consumed 4 units of both good x and good y with the initial price of \$5 for both goods (px = py = 5). The initial budget constraint is 40 = 5x +5y ...
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