Income Effect For Perfect Substitutes

But in case of an inferior good income effect operates in the opposite direction to the substitution effect. For example if the consumer increases its income and it s budget increases to 100 ceteris paribus she will keep spending all her budget in good x but her utility level will increase to 100. In case of normal goods the income effect reinforces the substitution effect.

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We maximize the utility when our budget line is tangent to the ic line.

Income effect for perfect substitutes. An indifference curve for perfect substitutes is a straight line. If the price of an inferior good falls the substitution effect will still cause a larger commodity. In fact it is the line defined by y const x for a utility level of const in bbb r. Enjoy the videos and music you love upload original content and share it all with friends family and the world on youtube.

Perfect substitute goods income effect if the budget increases the consumer will have a budget line farther away from the origin.