Diagrammatically explain concepts of income effect, substitution effect and price effect. Also
show the manner in which price effect can be split up into income and substitution effects.
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We may now breakdown the effect of a change in the price of bread on the quantity demanded into what J.R. Hicks called the substitution effect and income effect. The substitution effect shows the change in the consumption of x which occurs when its price and hence the relative prices of x and y change.
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