Income And Substitution Effect Price Increase Inferior Good
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Fig020 Jpg 300 245 Income Inferior Good Definitions
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However when the price of an inferior good falls the consequence will be an increase in the quantity demanded because of significant negative income effect.
Income and substitution effect price increase inferior good. It means that when the price of the inferior good falls the consumer purchases more of it due to compensating variation in income. In figure 3 x axis represents inferior goods commodity x and y axis denotes superior goods commodity y. Income effect and substitution effect are the components of price effect i e. The negative substitution effect is stronger than the positive income effect in the case of inferior goods so that the total price effect is negative.
The decrease in quantity demanded due to increase in price of a product.
Fig020 Jpg 300 245 Income Inferior Good Definitions
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