What is Substitution Effect?

Substitution Effect

Substitution Effect Definition Substitution Effect is change in demand for a good as the price of its substitute changes. Say if the price of Commodity A rises, consumers might shift to Commodity B. Substitution effect is seen only in the light of change in relative prices of goods, assuming that the nominal income of the … Read more

What is Income Effect?


Income Effect Definition Income Effect is the change in demand of a good when the consumer’s disposal income changes. Disposable income could change as a result of a change in income or due to a change in the prices of the goods that the consumer uses. For instance, a decline in the price of other … Read more