ECON 208 Lecture Notes - Lecture 10: Inferior Good, Normal Good, Opportunity Cost

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ECON 208 Full Course Notes
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ECON 208 Full Course Notes
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6. 2 income and substitution effects of price changes. *purchasing power = amount of things you can buy with a given income. The substitution effect increases qd of good whose (relative) price has fallen and decreases qd of good whose relative price has increased. For normal goods, income effect leads consumers to buy more of a product whose p fell. For inferior goods, the income effect leads consumers to buy less of a product whose p fell. Opposite to substitution effect: more money = want to buy nicer things. Size of income effects depends on change in purchasing power --> depends on fall in price and how important that good is in your budget. S = substitution effect: normal good: add substitution effect and income effect to look at change in demand curve. Inferior good: substitution effect increases demand for this good.

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