The Substitution Effect
The substitution effect takes place when the income of the consumer remains constant and the relative prices of the tow commodities changes. Suppose the price of one commodity rises and the other decreases now the consumer is neither better off nor worse off than before. However he will rearrange this purchase to compensate the loss. It means the consumer substitutes relatively cheaper goods for the relatively costlier ones.
Note: This is published for the internal use (of St. Philomena's College students) only and hence requires verification.
No comments:
Post a Comment