Answer to Question #201650 in Microeconomics for Tristin

Question

The price of pork falls in the market. Discuss using a diagram the substitution and income effects to the purchase of pork given the lower price. How is this related to the law of demand?

Answer 1

with the price of pork falling in the market the quantity of pork demanded will increase since it is relatively cheaper increasing the number of consumers in the market.

from the graph pork is represented by good x and substitution effect is shown along point A and A'.

the above graph shows the income effect from point A' to point B showing a fall in the price of pork increases the purchasing power of consumers allowing consumers to buy more than the given budget showing an increase in disposable income.

substitution and income effect is related to the law of demand which states the higher the price the lower the quantity demanded and in this case the decrease in price of pork increased its demand.