Re: Endowment income effect

Posted by masteryoda2015 on Apr 21, 2015; 1:37pm
URL: http://discussion-forum.276.s1.nabble.com/Endowment-income-effect-tp7596266p7596282.html

When you treat like that you are by default considering that your income effect is due to endowment income + ordinary income effect. The case that you discuss is a static comparison. You do not describe the method as to how he reaches X to Y. there may be in fact be cases where X can go to Y where endowment income effect is zero (Case where the person is indifferent to selling or buying of good 1).

Endowment Income Effect comes from the fact that you have certain capital or labour that you would sell in market and get income. If the price of that labour goes down or up, it will bound to change your endowment and hence your Demand.

Assume that you work at firm for 8 hours a day and the firm has a policy of giving 4$ extra for every hour late you stay back. And assume that your leisure is not affected if you stay back 1-2 hours. Then on the day's that you stay back an extra hour, you gain 4$ income to spend more on your consumption. There is no substitution effect or ordinary income effect. There is only an endowment income effect. Your extra free hour is getting.