Question

1) What Is Income Effect in Case Of Normal And Inferior good With Diagram?

2) What Is Price effect in case of Normal And Inferior good With Diagram?

3) What is Substitution effect in case of Normal Good and Inferior good With Diagram?
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Answer 1

Answer:

I don't know the Answer .

Answer 2

1. In case of inferior goods the income effect will work in opposite direction to the substitution effect. 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.

2. For normal goods, the income effect and the substitution effect both work in the same direction; a decrease in the relative price of the good will increase quantity demanded both because the good is now cheaper than substitute goods, and because the lower price means that consumers have a greater total purchasing power.

3. The substitution effect occurs due to a change in relative prices between two or more goods. For both normal and inferior goods, a price increase will lead to a reduction in quantity consumed of the good due to substitute goods being relatively cheaper.