Econ 185 Fall 2003

Production Possibility Frontiers

Saving for Retirement

Borrowing to Go to School

Income and Substitution Effects

Although the income effect can reverse the substitution effect, we think it generally does not because most people have income in both periods. If the consumption point is near the pivot point, the slope changes, causing a substitution effect, but the movement in or out is minimal.

Exam Strategies

The answer is most often a diagram in economics. Words is seldom the best strategy if you are clueless.

Avoid the postage stamp diagram, and do not make a mess. Label all axes and curves, and indicate which way things shift.

One important exam strategy is "Do not miss the easy ones."

This mortgage refinancing question (8% to 6%) is an easy one.