ECO100Y5 Chapter Notes - Chapter 6: Inferior Good, Conspicuous Consumption, Normal Good

• School: UTM
• Department: Economics
• Course: ECO100Y5
• Professor: Lee Bailey

Document Summary

Mu. x / p. x(per unit) = mu. y / p. y(per unit) A rise in the price of a product (with all other determinants of demand held constant) leads each utility - maximising consumer to reduce the quantity demanded of the product. Income and substitution effects of price changes real income. Income effect income effect the change in the quantity of a product demanded resulting from a change in real income (holding relative prices constant) The income effect leads consumers to buy more of a product whose price has fallen, provided that the product is a normal good. Because of the combined operation of the income and substitution effects, the demand curve for any normal good will be negatively sloped. A fall in price will increase the quantity demanded. An inferior good for which the income effect outweighs the substitution effect so that the demand curve is positively sloped. Income and substitution effects of a price change conspicuous consumption goods.