2.The good for which the price has increased is now more expensive relative to others. This also leads to changes in quantities consumed away from the more expensive good and towards others that are called “Substitution Effects”. ECON 203 Chapter 4 Slide 8The Total (observed) Effect of a Price IncreaseFIGURE 4-6The Total Effectof a Price Increasefrom $6/sq m to $24/sq m, with income held constant at $120 per weekECON 203 Chapter 4 Slide 9The Total Effect is the Sum of the Income and Substitution effectsFIGURE 4-7The Substitution effectand Income Effectof a price change(normal good)
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