Question

what will be the income effect ,in case of an interior good?

a)partially offsets the substitution effect
b)Is equal to the substitution effect
c)rein force the substitution effect
d)more than offsets the substitution Effect​

Answer 1

Explanation:

The income effect states that when the price of a good decreases, it is as if the buyer of the good's income went up. The substitution effect states that when the price of a good decreases, consumers will substitute away from goods that are relatively more expensive to the cheaper good.In economics and particularly in consumer choice theory, the substitution effect is one component of the effect of a change in the price of a good upon the amount of that good demanded by a consumer, the other being the income effectThe substitution effect is based on the idea that as prices rise, consumers will replace more expensive items with cheaper substitutions or alternatives, assuming income remains the same. ... For example, when the price of your favorite shampoo goes up a dollar, you decide to try a cheaper brandThe substitution effect is the decrease in sales for a product that can be attributed to consumers switching to cheaper alternatives when its price rises. ... If beef prices rise, many consumers will eat more chicken.