Question

Define income effect and income effect due to price change. Distinguish between a normal good and inferior good. Give the relation between Inferior good and Giffen good.​

Answer 1

Explanation:

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.

Answer 2

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.