Asked by
Darius Helton
on Oct 27, 2024Verified
If the substitution effect and the income effect of a price change move in opposite directions for a particular good,then the good must be an inferior good.
Substitution Effect
The change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods.
Income Effect
The alteration in the consumption habits of a person or an economy due to a variation in actual income.
Inferior Good
A type of good for which demand decreases when income increases, and vice versa, unlike normal goods where demand increases with an increase in income.
- Understand the relationship between price changes, income effect, substitution effect, and consumer demand.
- Examine the characteristics of normal and inferior goods in response to income and price changes.
Verified Answer
RR
Learning Objectives
- Understand the relationship between price changes, income effect, substitution effect, and consumer demand.
- Examine the characteristics of normal and inferior goods in response to income and price changes.