Please wait...
1800-212-7858 (Toll Free)
9:00am - 8:00pm IST all days

or

Thanks, You will receive a call shortly.
Customer Support

You are very important to us

For any content/service related issues please contact on this toll free number

022-62211530

Mon to Sat - 11 AM to 8 PM

Give the meaning of the following:

i. Income effect

ii. Substitution effect 

Asked by Topperlearning User 25th April 2016, 10:36 AM
Answered by Expert
Answer:
  1. Income effect: A change in the price of good causes a change in real income of the consumer and with a fall in price, it increases the real income. As a result, there is an expansion of demand for the good.
  2. Substitution effect: When price of one good falls, it becomes cheaper in relation to another good. As a result, one good is substituted for the other good. For example, with a fall in the price of tea, it is substituted for coffee.  
Answered by Expert 25th April 2016, 12:36 PM
Rate this answer
  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10

You have rated this answer /10

Your answer has been posted successfully!