Categories: Microeconomics

Income and Substitution Effect

Normal Good:

If consumption of that god increase due to a decrease in it price than it is a normal Good.

Inferior Good:

A good is inferior if there is a decrease in the consumption of that good. This means that the income effect is negative.

Giffen Good: The Special Case

These are good whose demand curve slopes upward because the (negative ) income effect is larger than the substitution effect. if incase one good becomes inferior than you tend to buy more of the other good which leads to an upward sloping demand curve. This also means that one good decrease in price leads to a lower quantity demanded for it.

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Marjan Arbab

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