Price Effect l Income Effect l Substitution Effect | normal good
Автор: JD's Guidance
Загружено: 2025-07-30
Просмотров: 83
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Price Effect l Income Effect l Substitution Effect | normal good
This video explains the concept of the price effect and its decomposition into the substitution effect and the income effect. Using graphical analysis, it demonstrates how a fall in the price of a commodity effectively increases the consumer’s real income, leading to changes in consumption patterns. It further illustrates how, when real income is held constant (compensated variation), the substitution effect causes consumers to substitute the relatively cheaper good for the more expensive one. Additionally, it shows how the income effect reflects the change in quantity demanded due to the change in real purchasing power, thereby influencing the demand for both goods.
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