Seriously man, you're great!! What students need are not fancy animated videos, but just clear and intuitive but concrete explanations. The idea of threatening the consumer with a price change helped so much!
you are an absolute hero for posting these videos, im revising my university resits and this helps so much more than my textbook. keep them coming man!
In this video, an "increase in the price" is an increase in the price of good X. You can see this on the graph. The new budget line is "pivoted" inward. Lecture 7 talks in more detail on how to identify/graph a price change.
So helpful the video! I didn't understand a word in my own lecture class which lasted an hour and a half and you made me understand it all in les than 10 minutes! Thanks A lot!
Wonderful video, I am 4th year in Econ major, but seem like I still have some missing concepts in Econ. Thus, searching for Compensating Variation, I found you video. Such a helpful vid you posted, Thank you very much.
@ThePractist Price is a per unit measure of how much a person has to give up. If the price goes up from 15 to 20 and you currently buy 10 units of the good, you need to be compensated about $50. If the price goes down from 20 to 15 and you currently buy 8 units of the good (less b/c 20 is a higher price), you need to be compensated about $40. This doesn't quite capture why CV differs from EV, but you should start at Lecture 5 and build to Lecture 16 if this idea of price is confusing.
At around 2:40, you write the calculation of the magnitude of the CV as e(A)-e(C). If I'm not mistaken, it should be the other way around: CV=e(C)-e(A). C is the more expensive bundle that follows the price increase. A is the original, cheaper bundle pre-price increase.
@ecnerwal999 Interesting point. Math is used in economics to clarify reasoning, not to explain what we cannot explain in words. We use math to prevent us from making illogical statements. It is much easier to obfuscate an absurd statement if you're not required to put it into math. Using math allows us to state clearly the assumptions needed for an argument. That said, if math is incomprehensible to you, this method of clarifying thought is counterproductive. Your frustration is understandable.
@yenpet Yes. If there are no income effects (quasilinear utility), this is the case. For a calculus intensive explanation for why, see my Lecture 16A where I relate CV, EV and changes in consumer surplus.
Hi, thankyou for your explanation. In my class notes it says that you should use EV when assessing the impact on different groups (of policies) and CV otherwise but I can't conclude why?
Very good tutorial. For the equivalent variation, I was wondering why you would put point E below B, in the case of an increase in price of X, individual will consumer less good X and have more good Y, so isnt E above B for the substitution effect. Thanks!!
But, we want a measure of how the price change affected the consumer's well being. Given that the price increased, it makes sense that CV is negative (meaning that the consumer is worse off). In other words, CV is e(original bundle) - e(compensated bundle). This would be positive for a price decrease.
@ecnerwal999 They only teach you (usually) one school of though, which is usually the neoclassical school. The neoclassicals sought to use math alot in their modelling of the economy. Different schools, such as the Austrian school, spend less time with this, and more on real life
How can this guy explain this better than my german prof on a famous economy university in fucking germany in fucking GERMAN man like i cant even speak english wtf ????!?GBEOGKRKGK
@ecnerwal999 ummm, actually you're wrong, sorry. all these curves tell a story, once you learn the story based on the assumptions you can then apply them to real world and make changes when the assumption don't hold. How do you think policies are devised? As for the GFC, economists were predicting this because of asset prices and bad lending practices, no economic model could've predicted what you former president and fed chairman allowed to happen. This is human behaviour gone wrong not econ!
if you let yourself fall into this way of thinking, everything in life is pointless. economics help you to think about the world in a mathematical sense and reflects the behavior of people. Although these equations and models may not have a precise real world application, they represent complex systems in a formidable way. this sounds more like your own discontent with your lack of math abilities and understanding of the subjects. don't be spiteful and narrowsighted.
