For a normal good, explain the differencebetween the income effect and the substitution effect using an appropriate diagram

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For a normal good, explain the differencebetween the income effect and the substitution effect using an appropriate diagram
Answered Same DayDec 20, 2021

Solution

Robert answered on Dec 20 2021
3 Votes
Answer:
Normal good is that good for which there is an increase in demand with the increase in the
Income .For normal goods Income and Substitution effects work in the same direction. So with
the change in the price of the commodity we have two effects:
 Substitution Effect
 Income Effect
Substitution Effect-With the increase in the price of the commodity consumer substitute for the
Cheaper good as this commodity now becomes relatively expensive. So substitution effect tell us
that with the rise in the price of the commodity the demand for the commodity falls....
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