0:00
Hello.
00:01
Okay.
00:02
So here we can let our two goods be x and y.
00:08
It's in the prices, px and py, respectively, and income is going to be m.
00:15
So the indifference curve is, as usual, the strict convex and budget line is going to be a straight line.
00:23
So the point where they intersect, this is the equilibrium, which is denoted here as point a.
00:28
So here we take x as the vertical.
00:32
Axis and y is the horizontal axis basically for drawing convenience so then we get the graph here now in this graph point a is the equilibrium point and the optimal bundles are x1 star and y1 star and b prime b prime is the budget line and i1 is the indifference curve so um we let y be a normal curve and after the increase in price of y there's going to be a fall in the demand for y.
01:01
But the demand for x may either increase or the same, maybe either be increasing or maybe not decreasing if the good x is assumed to be normal.
01:14
So if we have x is normal, so we get then that an increase in the price of good y relative to the price of good x is falling and then the demand for the good x is going to be increasing in a relative of sense.
01:30
So we get that the price effect is going to be the sum of the effects, and the price effect is from a to a prime...