Question

Explain income effect and substitution effect of price change when one good in inferior. Explain with the help of an example and graph.

Answer 1

Explanation:

For inferior goods, the income effect dominates the substitution effect and leads consumers to purchase more of a good, and less of substitute goods, when the price rises.

Answer 2

Answer:

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Explanation:

The income effect expresses the impact of increased purchasing power on consumption, while the substitution effect describes how consumption is impacted by changing relative income and prices. ... Some products, called inferior goods, generally decrease in the consumption whenever incomes increase