Differences
This shows you the differences between two versions of the page.
| Both sides previous revision Previous revision Next revision | Previous revision | ||
| kb:sd [2022-01-11 22:32] – [Effects of price change] jaeyoung | kb:sd [2024-04-30 04:03] (current) – external edit 127.0.0.1 | ||
|---|---|---|---|
| Line 45: | Line 45: | ||
| ==== Effects of price change ==== | ==== Effects of price change ==== | ||
| + | |||
| + | When the price of a good changes, it changes the desirability of that good relative to another good (substitution effect), and it also changes your effective income (income effect). | ||
| === Substitution effect === | === Substitution effect === | ||
| Line 65: | Line 67: | ||
| This is represented by an inward shift of the budget constraint curve from the compensated demand curve down to one that is actually achievable with the same income, although it will have the same slope. | This is represented by an inward shift of the budget constraint curve from the compensated demand curve down to one that is actually achievable with the same income, although it will have the same slope. | ||
| + | |||
| + | ==== Giffen good ==== | ||
| + | |||
| + | For a Giffen good, the effects of price changes are dominated by the income effect, leading to an increase in quantity demanded with an increase in price and therefore an upward sloping demand curve. | ||
| + | |||