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Income and substitution effects with an inferior good. In case of an inferior goods also called giffen good the income effect and substitution effect work in opposite directions i e. Substitution and income effects for an inferior good. It is because an inferior good reacts differently to a change in income. Inferior goods are cheap alternatives for normal goods.
Income and substitution effects on inferior goods. Therefore consumption of inferior goods by a person decreases if income increases above a certain level. 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. People use inferior goods when they are unable to afford normal goods or expensive goods.
In this revision video we look at the income and substitution effects for an inferior good. But in the case of an inferior product the income effect works in the opposite direction to the.
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Fig020 Jpg 300 245 Income Inferior Good Definitions
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Fig020 Jpg 300 245 Income Inferior Good Definitions
