Questions tagged [income-effect]

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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 ...
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1answer
67 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 ...
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0answers
13 views

IS-LM : monetary policy in SOE that exports inferior goods

If I follow the IS-LM model (or some derivative of it), a small open economy can really only use monetary policy to change GDP in the short term. According to the model (or one of its spin-offs), if ...
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0answers
40 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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2answers
72 views

How should I regress income inequality on economic growth?

I would like to know which variables to use to regress income inequality on economic growth. For income inequality, I am thinking of using the Gini index, but don't know what measurement exactly. For ...
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1answer
78 views

Meaning of «intertemporal substitution effect dominates the income effect»

Assume a household intertemporal optimisation problem, where they only either consume or labour, and one of the equilibrium conditions states that labour will be a positive function of productivity, ...