Income and substitution effects, Microeconomics

Income and Substitution Effects

A fall in price of a good has the two effects: Substitution & Income

-Substitution Effect

  • Consumers will tend to buy more of the good which has become relatively less costly, and less of the good that is now relatively expensive.

- Income Effect

  • Consumers experience an increase in purchasing power when price of one good falls.
Posted Date: 10/10/2012 7:16:14 AM | Location : United States







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