Vipul at 23:36, 14 November 2009

2009-11-14T23:36:12Z

← Older revision		Revision as of 23:36, 14 November 2009
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	'''Wealth effect''' refers to a situation where the wealth or purchasing power of a party to an economic transaction significantly distorts that person's [[reservation price]] compared to that person's [[private cost]] (in case of a seller) or that person's [[private benefit]] (in case of a buyer).		'''Wealth effect''' refers to a situation where the wealth or purchasing power of a party to an economic transaction significantly distorts that person's [[reservation price]] compared to that person's [[private cost]] (in case of a seller) or that person's [[private benefit]] (in case of a buyer).

			Under the idealized assumption of [[efficient capital market]]s, the role of wealth effects is reduced. In an efficient capital market, people are able to borrow money at zero cost if they are clearly capable of paying back the money.
	==Examples==		==Examples==

Vipul: Created page with '{{market failure}} ==Definition== '''Wealth effect''' refers to a situation where the wealth or purchasing power of a party to an economic transaction significantly distorts th...'

2009-03-30T16:44:13Z

Created page with '{{market failure}} ==Definition== '''Wealth effect''' refers to a situation where the wealth or purchasing power of a party to an economic transaction significantly distorts th...'

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{{market failure}}

==Definition==

'''Wealth effect''' refers to a situation where the wealth or purchasing power of a party to an economic transaction significantly distorts that person's [[reservation price]] compared to that person's [[private cost]] (in case of a seller) or that person's [[private benefit]] (in case of a buyer).

==Examples==

===Poor buyer===
The classic example of this is a person with very little money who is unable to purchase a basic amount of food even though the private benefit the person receives from the food is high.

===Poor seller===

The example is a person desperate for food to survive who is willing to sell labor at a lower price than the private cost to the person of performing that labor.

Wealth effect - Revision history

Vipul at 23:36, 14 November 2009

Vipul: Created page with '{{market failure}} ==Definition== '''Wealth effect''' refers to a situation where the wealth or purchasing power of a party to an economic transaction significantly distorts th...'