Substitution And Income Effect Indifference Curves

The movement from pt.

Substitution and income effect indifference curves. In this revision video we look at the income and substitution effects for an inferior good. When the price falls the substitution effect is never perverse it will always cause more to be demanded. X 2 involved a change in the marginal rate of substitution i e. When the price falls the substitution effect is never perverse.

But in the case of an inferior product the income effect works in the opposite direction to the substitution effect. A change from the blue indifference curve to the pink indifference curve. In this revision video we look at the income and substitution effects for an inferior good. X 1 to pt.

Thus the movement form q to r due to price effect can be regarded as having been taken place into two steps first from q to s as a result of substitution effect and second from s to r as a result of income effect.