Income Effect Price Increase Inferior Good

But normally it happens that negative income effect of.

Income effect price increase inferior good. Inferior goods and giffen goods. It means that when the price of the inferior good falls the consumer purchases more of it due to compensating variation in income. When price of an inferior good falls its negative income effect will tend to reduce the quantity purchased while the substitution effect will tend to increase the quantity purchased. In case of inferior goods the income effect will work in opposite direction to the substitution effect.

The negative substitution effect is stronger than the positive income effect in the case of inferior goods so that the total price effect is negative. The case of x as an inferior good is illustrated figure 15 20. As a result of income effect consumption of superior goods will. This is termed as an income effect.