Question

Can someone explain the the substitution effect and income effect to me?

Answer 1

@Algorithmic

Answer 2

Hello,

I will explain the two effects in separate paragraphs. If you are still confused after my explanation do not be hesitate to ask for me to elucidate.

\[\textbf{The Substitution Effect:}\]The substitution effect occurs when consumers react to an increase in a good’s price by consuming less of that good and more of other goods.

\[\textbf{The Income Effect:}\]The income effect happens when a person changes his or her consumption of goods and services as a result of a change in real income.

Peace.

Answer 3

I understand thank you again :) @Algorithmic

Answer 4

You are welcome.

Peace.