The consumer is initially at A on budget line RS.With a decrease in the price of food,the consumer moves to B. The resulting change in food purchased can be broken down into a substitution effect F E(associated with a move fromA to D)and an income effect EF,(associated with a move from D to B). In this case,food is an inferior good because the income effect is negative.However,because the substitution effect exceeds the income effect,the decrease in the price of food leads to an increase in the quantity of food demanded
The consumer is initially at A on budget line RS. With a decrease in the price of food, the consumer moves to B. The resulting change in food purchased can be broken down into a substitution effect F1E (associated with a move from A to D) and an income effect EF2 (associated with a move from D to B). In this case, food is an inferior good because the income effect is negative. However, because the substitution effect exceeds the income effect, the decrease in the price of food leads to an increase in the quantity of food demanded
Because the income effect can be positive or negative,a price change can have a small or a large effect on quantity demanded. Giffen good(佶吉芬物品)-Good whose demand curve slopes upward because the (negative)income effect is larger than the (positive) substitution effect
❑ Because the income effect can be positive or negative, a price change can have a small or a large effect on quantity demanded. Giffen good(吉芬物品)-–Good whose demand curve slopes upward because the (negative) income effect is larger than the (positive) substitution effect
Clothing (units per R month) B C U2 C2 Budget Line S Total Effect O Food ◆Substitution T (units per month) Income Effect Upward-Sloping Demand Curve:The Giffen Good
Clothing (units per month) Food (units per month) Upward-Sloping Demand Curve: The Giffen Good Budget Line U1 U2 C2 R B A D F1 S E C1 F2 T Substitution Income Effect Total Effect O
When food is an inferior good,and when the income effect is large enough to dominate the substitution effect,the demand curve will be upward-sloping.The consumer is initially at A but,after the price of food falls,moves to B and consumes less. Because the income effect F2F is larger than the substitution effect EF2,the decrease in the price of food leads to a lower quantity of food demanded
When food is an inferior good, and when the income effect is large enough to dominate the substitution effect, the demand curve will be upward-sloping. The consumer is initially at A but, after the price of food falls, moves to B and consumes less. Because the income effect F2F1 is larger than the substitution effect EF2 , the decrease in the price of food leads to a lower quantity of food demanded