How do the substitution and income effects influence demand decisions?

1 Answer
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


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.