Ordinary Inferior Goods

Ordinary Inferior Goods If the positive substitution effect over weighs the negative income effect, the net result would be an increase in the quantity of the good bought when its price falls. This will be so in case of ordinary inferior goods. Giffen Goods [f, on the...

PRICE EFFECT

PRICE EFFECT Components  Price Cited The movement of the consumer along the price consumption curve, such as from equilibrium point P I to P as a result of a fall in the price of X, is in reality a resultant of two Forces. Tile first of these components is the feeling...

SUBSTITUTION EFFECT

SUBSTITUTION EFFECT We have discussed above the effect on consumer’s equilibrium of a change in consumer.s income, relative of commodities remaining the same. Now lei us see the effect of a change in relative prices. consumer’s income remaining the same....

INCOME EFFECT

INCOME EFFECT Our general observation of how consumers react to an increase in their incomes suggests that most income consumption curves are of the shape presented ill , i.e., slopping upwards to the right. This means that, as a rule, a rise in consumer’s...

Conditions of Equilibrium

Conditions of Equilibrium Thus. two conditions must be satisfied for a consumer tq attain an equilibrium: (I) The price line should be tangent to an indifference curve or MRS of one c commodity for another should be equal to their relative pries. This is no doubt a...