ECON101 Lecture 16: lecture 16

• School: University of Waterloo
• Department: Economics
• Course: ECON101
• Professor: Nafeez Fatima

Document Summary

Graph 1: decrease in $ of movies graph 2: increase in income. A move from a to b is called the price effect. The law of demand predicts that there is a negative relationship between price and quantity demanded for a good. I. e. price goes up, quantity demanded goes down. Price goes down, quantity demanded goes up. The law of demand is based on two effects: substitution effect (se, income effect (ie) If se > ie, then in the first line qd goes down. When income increases, consumers buy less of the good. When income decreases, consumers buy more of the good. Allocation of time between labour and leisure. Two constraints: time constraint - total hours available: 168, budget constraint - (income - time budget line) The opportunity cost of leisure time is the wage forgone. When wage increases, leisure becomes an expensive product compared to working. Therefore, workers take less leisure time and work more.