• Beyond determining equilibrium price and quantities, it is important to understand and measure changes in consumer welfare, whether through demand curves or cost-of-living indexes
• Economists find it useful to dissect the effects of a price change into one that depends only on the change in purchasing power (income effect) and one that depends only on the changes in relative price (substitution effect)
• We will also study a new type of demand curve that holds a consumer’s welfare fixed (compensated/Hicksian demand), instead of the one the holds income constant (uncompensated/Marshallian demand)
• An interesting example of demand is the demand for leisure, which allows us to derive the supply for labor