Question

the income and substitution effects of a price change explain what

Answer 1

Ans:

The income and substitution effects of a price change is as follows

Substitution effect is the affect of change in the price of a good on demand for the good.For example when a price of a good increases, people will switch to other goods which are cheaper.This is called the substitution effect.

Income effect is the affect of change in real disposal income on demand for the good.A increase in prices will effectively cut disposable income and the demand will be lower.This is called the income effect.