Alex, I believe that it is certainly worth the trouble for students who go on to graduate studies, and perhaps for others as well. I usually discuss Friedman's Marshallian Demand curve piece and the income/substitution effect conversation is necessary for this. In addition, it just helps students to understand the differences between real and nominal income, they will do better in Macro if they understand this whole concept.
Lee Coppock -----Original Message----- From: Alex T Tabarrok [mailto:[EMAIL PROTECTED]] Sent: Tuesday, February 11, 2003 11:40 AM To: armchair Subject: income and substitution effect Almost every intermediate micro text spends a great deal of time on income versus substitution effects. This is a somewhat tricky concept for students to understand so one would hope that the payoff to learning the idea is high. But what is the payoff? One of the few applications is to labor supply which most textbooks put much later in the text and don't connect to the income and substitution effect anyway. Most textbooks don't do any sophisticated welfare analysis either. So is it really worthwhile to learn this material? Alex -- Alexander Tabarrok Department of Economics, MSN 1D3 George Mason University Fairfax, VA, 22030 Tel. 703-993-2314 Web Page: http://mason.gmu.edu/~atabarro/ and Director of Research The Independent Institute 100 Swan Way Oakland, CA, 94621 Tel. 510-632-1366