Revise the Substitution and Income Effects

The substitution effect of a price change always causes the consumer to demand more of the relatively cheaper good. The income effect is more complex, and can either work with or against the substitution effect – depending on whether the good is normal or inferior. We can also use these effects to better understand complements and substitutes by looking at the change in the demand for Y with a price change in X. Test your economics knowledge with the worksheet below. Comment or tweet @AskTheProfs if you have any problems!

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