Substitution effect, Microeconomics

Substitution Effect

-  The  substitution effect is change in an item's consumption associated with the change in the price of the item, level of utility held constant.

-  When the price of item declines, substitution effect leads to an increase in the quantity of item demanded.

Income Effect

- The income effect is change in the consumption of an item brought by increase in purchasing power, with the price of item held constant.

- When income of person increases, the quantity demanded for product can increase or decrease.

-  Even with inferior goods, the income effect is sufficiently large to outweigh the substitution effect. 

Posted Date: 10/10/2012 7:16:41 AM | Location : United States







Related Discussions:- Substitution effect, Assignment Help, Ask Question on Substitution effect, Get Answer, Expert's Help, Substitution effect Discussions

Write discussion on Substitution effect
Your posts are moderated
Related Questions
The Demand Curve - The demand curve exhibits how much of a good consumers are ready to buy as the price per unit changes keeping non-price factors constant. - This price-qua

1).Explain a coordination failure. Using the Prisoner's Dilemma example above, discuss coordination failure. 2). What's a Market Failure? Please define the circumstances under w

what are the advantages of monopsony?

Budget Constraints   * The Budget Line - The budget line indicates all the combinations of 2 commodities for which total money spent equals the total income. * The Budget

Economies and Diseconomies of Scale -Economies of Scale Increase in the output is greater than increase in the inputs. -Diseconomies of Scale Increase in the

Suppose that the following equation characterizes the demand for primary education in a developing country X: Q = 100 – 2P Where Q is quantity demanded in years of schooling and

HOW TO REDUCE SMOKING USING INDIFFERENCE S AND BUDGETLINE

If there is an industry and some of the companies get shut down, how would you graph the short run and long run effects

equation for a demand curve is p=2/q. what is the elasticity of demand if price falls from 5 to 4

Problem : (a) Describe the law of demand and the factors affecting demand. (b) llustrate and  Explain how demand of a commodity will change if there is a tax on that product