21. Income Effect and Substitution Effect

The fifth in a series of Microeconomics study resources that looks at consumer behavior theory, a branch of microeconomics that seeks to understand how individuals make decisions regarding the purchase, consumption, and disposal of goods and services. It explores the factors and processes that influence consumers’ choices, preferences, and behaviors in the marketplace.

This resource covers the income and substitution effect; how a change in the price of a product induces a change in its consumption. It looks at:

• Income and substitution effect for normal goods
• Income and substitution effect for inferior goods
• Income and substitution effect for Giffen goods