Asked by
Jaden Bryson
on Dec 08, 2024
Verified
For normal goods, the income and substitution effects work in the same direction.
Income Effects
The changes in an individual's or economy's income and how that changes their spending and saving behavior.
Substitution Effects
The change in consumption patterns due to a change in the relative prices of goods.
Normal Goods
Goods for which demand goes up when income is higher and for which demand goes down when income is lower.
- Understand how income and substitution effects explain the behavior of consumers in response to price changes for normal and inferior goods.
Verified Answer
FD
Learning Objectives
- Understand how income and substitution effects explain the behavior of consumers in response to price changes for normal and inferior goods.