If I were teaching intermediate micro, I think I would begin by asking
students why they consume less of x when its price rises. Presumably
most would say that they would switch to other products. Then I would
ask them to consider a world with only ONE good. Obviously with only
one good, price does not work via substitution. Why then does
consumption decline in the latter case? Because higher prices make you
poorer, making you tend to buy less overall. Then I'd explain that as
the number of goods rises, the latter income effect tends to matter less
and less.
I probably wouldn't go through the whole textbook discussion (unless the
students were largely going to grad school), but I think the point is
worth half a class.
--
Prof. Bryan Caplan
Department of Economics George Mason University
http://www.bcaplan.com [EMAIL PROTECTED]
"He wrote a letter, but did not post it because he felt that no one
would have understood what he wanted to say, and besides it was not
necessary that anyone but himself should understand it."
Leo Tolstoy, *The Cossacks*
