Income And Substitution Effects For Inferior Goods

People use inferior goods when they are unable to afford normal goods or expensive goods.

Income and substitution effects for inferior goods. Substitution and income effects for an inferior good. Income and substitution effects on inferior goods. When the price falls the substitution effect is never perverse it will always cause more to be demanded. If x is an inferior good the income effect of a fall in the price of x will be positive because as the real income of the consumer increases less quantity of x will be demanded.

Inferior goods are cheap alternatives for normal goods. In case of an inferior goods also called giffen good the income effect and substitution effect work in opposite directions i e. Therefore consumption of inferior goods by a person decreases if income increases above a certain level. It is because an inferior good reacts differently to a change in income.

The net effect equal the difference between substitution effect and income effect. Price effect be bd substitution effect de income effect.