Substitution And Income Effect For Inferior Goods

When the price falls the substitution effect is never perverse it will always cause more to be demanded.

Substitution and income effect for inferior goods. The net effect equal the difference between substitution effect and income effect. Its demand increases with decrease in income and vice versa. It is because an inferior good reacts differently to a change in income. But in the case of an inferior product the income effect works in the opposite direction to the.

In case of an inferior goods also called giffen good the income effect and substitution effect work in opposite directions i e. Therefore consumption of inferior goods by a person decreases if income increases above a certain level. Income and substitution effects on inferior goods. Substitution and income effects for an inferior good.

People use inferior goods when they are unable to afford normal goods or expensive goods. In this revision video we look at the income and substitution effects for an inferior good.