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Chapter 6: Demand - Coggle Diagram

- - - - If demand for a good increases by a greater proportion than income, the good is a luxury good
        
        If demand for a good increases by a lesser proportion than income, the good is necessary good
        
        A Homothetic preference is when demand for a good goes up by the same proportion as income
      - A homothetic preference is one where if a consumer prefers the ratio of (x1;x2) to (y1;y2) then they automatically prefer (2x1;2x2) to (2y1;2y2) etc
        
        The consumer prefers (tx1;tx2) to (ty1;ty2) for any positive value of t.
        
        Perfect subsitutes, perfect complements and Cobb-Douglas are all homothetic preferences
        
        If the consumer has homothetic preferences, the income offer/engel curves are all straight lines through the origin
        ∴ When income is scaled up or down by any amount t > 0, the demanded bundle scales up or down by the same amount
        If the indifference curve is tangent to the budget line at (x∗ 1, x∗ 2), then the indifference curve through (tx∗ 1, tx∗ 2) is tangent to the budget line that has t times as much income and the same prices. This implies that the Engel curves are straight lines as well. If you double income, you just double the demand for each good.