Income and Substitution Effect (Graphical Explanation)
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Income and Substitution Effect (Graphical Explanation)
A fall in the price of a good has two effects, income and substitution effect. Suppose the consumer purchases two goods; food and clothing. Assume that the price of food falls with the price of clothing remaining the same. Then two changes can happen, consumers can buy more of food as it has become relatively cheaper. He substitutes clothing ...
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