Income And Substitution Effect Indifference Curve

In this revision video we look at the income and substitution effects for an inferior good.

Income and substitution effect indifference curve. This is different from a change in income which only involves one change a change in. Thus the movement form q to r due to price effect can be regarded as having been taken place into two steps first from q to s as a result of substitution effect and second from s to r as a result of income effect. In this revision video we work through how to show the substitution and income effects arising from a fall in the market price of a product in our example w. When the price falls the substitution effect is never perverse.

The movement from pt. When the price falls the substitution effect is never perverse it will always cause more to be demanded. The movement from s on a lower indifference curve to r on a higher indifference curve is the result of income effect. A change from the blue indifference curve to the pink indifference curve.

A change in the slope of the indifference curve and a change in utility i e. But in the case of an inferior product the income effect works in the opposite direction to the substitution effect.