Income and Substitution Effects — A Summary

The income and substitution effects on free time act in opposite directions. In our example, the income effect is positive (a wage rise increases free time) ...

The Substitution Effect is the effect due only to the relative price change, controlling for the change in real income. In order to compute it we ask what is ...

The substitution effect of higher wages means workers will give up leisure to do more hours of work because work has now a higher reward. The income effect ...

The income effect is the simultaneous move from B to C that occurs because the lower price of one good in fact allows movement to a higher indifference curve. ( ...

When the price ratio between items changes it can induce a change in consumption. There are two reasons for this. First, reducing the relative price of an ...

This occurs when a good has more costly substitutes that see an increase in demand as the economy improves. For inferior goods, the income elasticity of demand ...