8 Income Effect

8 Income Effect - Consumer Choice Income Click to edit...

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Click to edit Master subtitle style 11 Consumer Choice Income Effect and Price Effect
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22 Income Effect And Price Effect o Demand curve actually summarizes impact of two separate effects of price change on quantity demanded n Substitution effects n Income effects o Effects sometimes work together, and sometimes opposes each other o No matter whether you use marginal utility approach or Indifference Curve approach to derive the demand curve
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33 Substitution Effects o Substitution effects n As the price of a good falls, the consumer substitutes that good in place of other goods whose prices have not changed o Substitution effect of a price change arises from a change in the relative price of a good n And it always moves quantity demanded in the opposite direction to the price change o When price decreases (increases), substitution effect works to increase (decrease) quantity demanded
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44 The Income Effect o A price cut gives consumer a gift, which is rather like an increase in income o Income effect n As price of a good decreases, the consumer s purchasing power increases, causing a change in quantity demanded for the good n Income effect of a price change arises from a change in purchasing
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8 Income Effect - Consumer Choice Income Click to edit...

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