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Indifference Curves - Income and Substitution Effects for Inferior Goods

Level:
A-Level, IB Diploma
Board:
AQA, Edexcel, Eduqas, IB, OCR, WJEC

Last updated 21 Mar 2021

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In this revision video we look at the income and substitution effects for an inferior good.

When the price falls, the substitution effect is NEVER perverse, it will always cause more to be demanded. But in the case of an inferior product, the income effect works in the opposite direction to the substitution effect.

Only if the substitution effect outweighs the income effect will demand expand when the price falls.

Indifference Curves - Income and Substitution Effects for Inferior Goods

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Indifference Curves - Income and Substitution Effects for Inferior Goods
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