Unformatted text preview: total demand will increase from 3 to 4 units. The income effect further enables a consumer to increase his demand for cheaper goods. Note that a rise or fall that occurs with a change in the price of a good is not an increase in the money income of a consumer (which is constant as $12) but it is an increase in the real income of a consumer. Since an increase in income and an increase in consumption are changes in the same direction, the income effect is said to be direct and positive. The income effect is generally positive for ’normal’ goods. Only in the case of exceptional type of ’inferior’ goods the income effect becomes negative ....
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This note was uploaded on 11/26/2011 for the course ECONOMIC ec 201 taught by Professor - during the Fall '10 term at Montgomery.
- Fall '10