How do the substitution and income effects influence demand decisions?

1 Answer
Nallasivam V
Aug 9, 2015

Income and substitution effects are the two important effects that account for the downward sloping of the demand curveenter link description here

Explanation:

When the price of a good falls, the real income of the consumer increases. It enables him to buy more of the same good.

When the price of a good falls, it becomes relatively cheap. The relative cheapness induces the consumer to substitute this good in the place of other good. He buys more of the same good, after a fall in the price of the good. Kindly watch the video.

Related questions
See all questions in Income and substitution effects
Impact of this question
2994 views around the world
You can reuse this answer
Creative Commons License