Income and Substitution Effect

&NewLine;<&excl;-- WP QUADS Content Ad Plugin v&period; 2&period;0&period;95 -->&NewLine;<div class&equals;"quads-location quads-ad1" id&equals;"quads-ad1" style&equals;"float&colon;left&semi;margin&colon;0px 0px 0px 0&semi;">&NewLine;&NewLine;<&sol;div>&NewLine;<p>A fall in the price of a Good has two effects&colon; <&sol;p>&NewLine;<h2><&sol;h2>&NewLine;<ol>&NewLine;<li>Consumers will buy more of a good that is cheaper and less of the good which has become expensive&period; This consequence to a change in the price of a relative good is called the Substitution effect&period; <&sol;li>&NewLine;<li>Secondly When a good become cheaper&comma; consumers are pleased with their increase in their real purchasing power &period; Because now you are buying the same quantity at a lower price&period; This is the INcome Effect&period; <&sol;li>&NewLine;<&sol;ol>&NewLine;<p> By definition&colon; <&sol;p>&NewLine;<h2><&sol;h2>&NewLine;<h2>Substitution Effect&colon; <&sol;h2>&NewLine;<p> Change in consumption of a good related to the change in its price &comma; with the level of utility held constant &lpar;Off course&excl; if your eating more than you did before just because the prices fall than its different &rpar;&period; <&sol;p>&NewLine;<h2>Income Effect&colon; <&sol;h2>&NewLine;<p> Change in consumption of a good resulting from an increase in purchasing power with relative prices held constant&period; <&sol;p>&NewLine;<p> &lbrack;large&rsqb;&NewLine;<&excl;-- WP QUADS Content Ad Plugin v&period; 2&period;0&period;95 -->&NewLine;<div class&equals;"quads-location quads-ad2" id&equals;"quads-ad2" style&equals;"float&colon;none&semi;margin&colon;0px 0 0px 0&semi;text-align&colon;center&semi;">&NewLine;&NewLine;<&sol;div>&NewLine;&NewLine;<&excl;-- WP QUADS Content Ad Plugin v&period; 2&period;0&period;95 -->&NewLine;<div class&equals;"quads-location quads-ad3" id&equals;"quads-ad3" style&equals;"float&colon;none&semi;margin&colon;0px&semi;">&NewLine;&NewLine;<&sol;div>&NewLine;&NewLine;