Debates
11 Feb 05
14 Feb 05
I'd love to offer my opinion on these things and the economics behind it.
It's my birthday today, however, and with all the things going on, I probably won't post it until tomorrow.
Before I respond, it would be helpful to know if you've studied any microeconomics. Specifically are you familiar with the decomposition of the effect of a price change on quantity demanded into income and substitution effects?
14 Feb 05
Originally posted by telerionWow! Income and substitution effects! That takes me a long way back to grad school. Can you draw indifference curves on here? Kudos for your introducing valid economic concepts on here (I mean that--except for the Laffer curve, of course: cocktail napkin econometrics?). Going back to give you a rec. 😀
I'd love to offer my opinion on these things and the economics behind it.
It's my birthday today, however, and with all the things going on, I probably won't post it until tomorrow.
Before I respond, it would be helpful to know if you've studied any microeconomics. Specifically are you familiar with the decomposition of the effect of a price change on quantity demanded into [b]income and substitution effects? [/b]
14 Feb 05
1 edit
Originally posted by sasquatch672Except that, if the (positive) income effect outweighs the substitution effect, quantity demanded of both goods may increase...and let's not forget the good ole caveat: ceteris paribus. Boy does thing bring back memories! 😕
Happy birthday! Go do more important things.
Ooh. Micro & macro 101, many moons ago, & my professor was a joke. Also engineering economics.
Effect of price change on quantity demanded - inverse relationship. Substitution of ...[text shortened]... es when price of the primary goes up & vice versa.
How'd I do?
17 Feb 05
Originally posted by sasquatch672I will post on this. Got a lot of busy work. Might have found a good area in which to do future research; lots to read (For those who care: open-economy macroeconomics with endogenous incomplete markets. Cool stuff!). I will post I promise.
Happy birthday! Go do more important things.
Ooh. Micro & macro 101, many moons ago, & my professor was a joke. Also engineering economics.
Effect of price change on quantity demanded - inverse relationship. Substitution of a simliar product increases when price of the primary goes up & vice versa.
How'd I do?
Also the income and substitution effect stuff is for static, partial equilibrium analysis. As vistesd points out it is conducted ceteris peribus, all else being equal. When I do post, I will cover this analysis, first. It is illuminating but assumes away many things which are likely important.
I have spoken with some people about papers which examine the problem with a dynamic general equilibrium (DGE) model. This will differentiate between a flat sales tax on all goods (including property) and a flat income tax (I think I will argue that partial equilibrium does not.). In so doing and by examining how tax policy affects everything within the system, this the DGE model may add some weight to the case for a flat sales tax on consumption goods, but perhaps not on income. I'll just have to see. Naturally, any result will only come with some assumptions. I will try my best to point those out, so that you can see how believable you think that they are. I'm currently tracking down one of the big papers. I'll look through it and get back to you.
Effect of price change on quantity demanded - inverse relationship.
For a normal good, yes. For a Giffen good, no.
Also depends on the price elasticity of demand (basically sensitivity of demand to price changes). For very inelastic demand curves, quantity demanded would change little or not at all.
But for most things yes this is right.
Substitution of a simliar product increases when price of the primary goes up & vice versa.
Right, the substitution effect says that the part of the change in quantity demanded comes from a substitution to other goods which have become relatively less expensive compared to the good thats price has changed. Again, check for Giffen goods here, but otherwise yes.
The income effect recognizes that if the price of something you had been purchasing rises, then your income has effectively been reduced because you cannot by the same bundle of goods any longer. In order to continue purchasing the same quantity of the good thats price has risen, you will have to reduce your purchases of some thing else you had been buying. The direction of this effect will depend on whether the good is an inferior (effect is positive) or a normal good (effect is negative).
Anyway, that is all for now. I will respond; I promise. I just have to be careful, and thorough because I don't want to get on here and spout a bunch of hot air, like I might otherwise do if we were debating politics or something.