I have always thought this is a tough question, and one of the reasons I have trouble teaching intermediate price theory. I think part of the answer is who you are teaching. A lot of intermediate is prep work for later applications classes, and the applications in the texts are usually there simply to motivate the topic, rather than make substantial use of the technique. If you are teaching students who are economics majors, and will take a lot of field classes, they are likely to use income and substitution effects in labor and in applied econometrics. The related shifting of isocost lines into substitution and output effects is part of industrial organization.
On the other hand, if you have a group of business students who have to take principles plus intermediate, and never again take another economics class, income and substitution effects seem like a waste of time. Bill Sjostrom +++++++++++++ William Sjostrom Senior Lecturer Centre for Policy Studies National University of Ireland, Cork Cork, Ireland +353-21-490-2091 (work) [EMAIL PROTECTED] [EMAIL PROTECTED] ----- Original Message ----- From: "Alex T Tabarrok" <[EMAIL PROTECTED]> To: "armchair" <[EMAIL PROTECTED]> Sent: Tuesday, February 11, 2003 4:39 PM 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 > > > > > >