IE_SE_Facts - The Facts about different types of good and...

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The Facts about different types of good and income and substitution effects: Three kinds of good: normal good, inferior good, giffen good A giffen good must also be an inferior good In a consumption bundle not all good can be inferior, at least one good must be normal For normal good ‘x’: o Income effect is positive if the price of ‘x’ decreases o Income effect is negative if the price of ‘x’ increases o Substitution effect is positive if the price of ‘x’ decreases o Substitution effect is negative if the price of ‘x’ increases o Thus, for normal good, income and substation effect move in the same direction o Total effect is positive if the price of ‘x’ decreases o Total effect is negative if the price of ‘x’ increases For inferior good ‘x’: o Income effect is negative if the price of ‘x’ decreases o Income effect is positive if the price of ‘x’ increases o Substitution effect is positive if the price of ‘x’ decreases o
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