Answer to Question #295581 in Microeconomics for Bros

Question

Clearly describe substitution effect and income effect for a fall in price for a normal good and an inferior good

Answer 1

For a normal good, a fall in price will result to increase in demand as the consumers are able to acquire more quantity of the good at a cheaper price. Also the consumers are left with more income which they can use to acquire more quantity of the good.

For an inferior good, when the price of the good falls the demand for it reduces. This is because the consumers are left with more income which they use to substitute the consumption of the inferior good with other goods.