effects ppt
TRANSCRIPT
![Page 1: Effects ppt](https://reader035.vdocuments.us/reader035/viewer/2022062313/55846fa3d8b42ad1588b5338/html5/thumbnails/1.jpg)
Substitution Effect,Income Effect
&Price Effect
![Page 2: Effects ppt](https://reader035.vdocuments.us/reader035/viewer/2022062313/55846fa3d8b42ad1588b5338/html5/thumbnails/2.jpg)
Substitution Effect (S.E.)• Definition: It refers to the change in quantity demanded f
or a good caused by a change in relative price, holding real income constant.
![Page 3: Effects ppt](https://reader035.vdocuments.us/reader035/viewer/2022062313/55846fa3d8b42ad1588b5338/html5/thumbnails/3.jpg)
Substitution Effect (S.E.)• Definition: It refers to the change in quantity demanded f
or a good caused by a change in relative price, holding real income constant.
Qy
0 QxQx0 Qx1
Px
Qx
![Page 4: Effects ppt](https://reader035.vdocuments.us/reader035/viewer/2022062313/55846fa3d8b42ad1588b5338/html5/thumbnails/4.jpg)
Substitution Effect (S.E.)• Definition: It refers to the change in quantity demanded f
or a good caused by a change in relative price, holding real income constant.
Qy
0 QxQx1
Qx
Px
Qx0
![Page 5: Effects ppt](https://reader035.vdocuments.us/reader035/viewer/2022062313/55846fa3d8b42ad1588b5338/html5/thumbnails/5.jpg)
Substitution Effect (S.E.)
Px Qx
Px Qx
![Page 6: Effects ppt](https://reader035.vdocuments.us/reader035/viewer/2022062313/55846fa3d8b42ad1588b5338/html5/thumbnails/6.jpg)
Income Effect (I.E.)• Definition: It refers to the change in quantity demanded f
or a good caused by a change in real income, holding relative price constant.
![Page 7: Effects ppt](https://reader035.vdocuments.us/reader035/viewer/2022062313/55846fa3d8b42ad1588b5338/html5/thumbnails/7.jpg)
Income Effect (I.E.)• Definition: It refers to the change in quantity demanded f
or a good caused by a change in real income, holding relative price constant.
Qy
0 Qx
Qx
I
Qx0 Qx1
![Page 8: Effects ppt](https://reader035.vdocuments.us/reader035/viewer/2022062313/55846fa3d8b42ad1588b5338/html5/thumbnails/8.jpg)
Income Effect (I.E.)• Definition: It refers to the change in quantity demanded f
or a good caused by a change in real income, holding relative price constant.
Qy
0 Qx
Qx
I
Qx1 Qx0
![Page 9: Effects ppt](https://reader035.vdocuments.us/reader035/viewer/2022062313/55846fa3d8b42ad1588b5338/html5/thumbnails/9.jpg)
Income Effect (I.E.)
I Qx
I Qx
Normal Goods !!
![Page 10: Effects ppt](https://reader035.vdocuments.us/reader035/viewer/2022062313/55846fa3d8b42ad1588b5338/html5/thumbnails/10.jpg)
Income Effect (I.E.)
I Qx
I Qx
Normal Goods !!
![Page 11: Effects ppt](https://reader035.vdocuments.us/reader035/viewer/2022062313/55846fa3d8b42ad1588b5338/html5/thumbnails/11.jpg)
Income Effect (I.E.) Normal Good
Inferior Good
Qy
Qx
0
Qx0 Qx1
QxI Qy
Qx
0
Qx0Qx1
QxI
![Page 12: Effects ppt](https://reader035.vdocuments.us/reader035/viewer/2022062313/55846fa3d8b42ad1588b5338/html5/thumbnails/12.jpg)
Income Effect (I.E.) Normal Good
Inferior Good
Qy
Qx
0
Qx1 Qx0
QxI Qy
Qx
0
Qx1Qx0
QxI
![Page 13: Effects ppt](https://reader035.vdocuments.us/reader035/viewer/2022062313/55846fa3d8b42ad1588b5338/html5/thumbnails/13.jpg)
Income Effect (I.E.)
• Normal Good:
• Inferior Good: I
Qx
I
I
I
Qx
Qx
Qx
![Page 14: Effects ppt](https://reader035.vdocuments.us/reader035/viewer/2022062313/55846fa3d8b42ad1588b5338/html5/thumbnails/14.jpg)
Price Effect (P.E.)• Definition: It refers to the change in quantity demanded f
or a good caused by a change in relative price.
![Page 15: Effects ppt](https://reader035.vdocuments.us/reader035/viewer/2022062313/55846fa3d8b42ad1588b5338/html5/thumbnails/15.jpg)
Price Effect (P.E.)• Definition: It refers to the change in quantity demanded f
or a good caused by a change in relative price.
Qy
0 Qx
Px
Qx0 Qx1
Qx
![Page 16: Effects ppt](https://reader035.vdocuments.us/reader035/viewer/2022062313/55846fa3d8b42ad1588b5338/html5/thumbnails/16.jpg)
Price Effect (P.E.)• Definition: It refers to the change in quantity demanded f
or a good caused by a change in relative price.
Qy
0 Qx
Px
Qx1 Qx0
Qx
![Page 17: Effects ppt](https://reader035.vdocuments.us/reader035/viewer/2022062313/55846fa3d8b42ad1588b5338/html5/thumbnails/17.jpg)
When price changes(P.E.)
P.E. = S.E. + I.E.
Relative price changes(S.E.)
Real income changes(I.E.)
![Page 18: Effects ppt](https://reader035.vdocuments.us/reader035/viewer/2022062313/55846fa3d8b42ad1588b5338/html5/thumbnails/18.jpg)
When price changes(P.E.)
P.E. = S.E. + I.E.
Relative price changes(S.E.)
Real income changes(I.E.)
![Page 19: Effects ppt](https://reader035.vdocuments.us/reader035/viewer/2022062313/55846fa3d8b42ad1588b5338/html5/thumbnails/19.jpg)
P.E.
S.E.
I.E.
Px Qx Px Qx
normal gd+ve
inferior gd-ve
I Qx I Qx
I Qx I Qx
-ve
![Page 20: Effects ppt](https://reader035.vdocuments.us/reader035/viewer/2022062313/55846fa3d8b42ad1588b5338/html5/thumbnails/20.jpg)
P.E.Assume Px
S.E. : Px Qx
I.E.
normal gd :+ve
inferior gd :-ve
I Qx
I Qx
Qx Case 1
![Page 21: Effects ppt](https://reader035.vdocuments.us/reader035/viewer/2022062313/55846fa3d8b42ad1588b5338/html5/thumbnails/21.jpg)
P.E. Px
S.E. : Px Qx
I.E.
normal gd :+ve
inferior gd :-ve
I Qx
I Qx
Qx ?
![Page 22: Effects ppt](https://reader035.vdocuments.us/reader035/viewer/2022062313/55846fa3d8b42ad1588b5338/html5/thumbnails/22.jpg)
S.E.Px Qx
I.E.inferior gdI Qx
S.E. I.E.
S.E. I.E.
Qx
Qx
Case 2
Case 3
![Page 23: Effects ppt](https://reader035.vdocuments.us/reader035/viewer/2022062313/55846fa3d8b42ad1588b5338/html5/thumbnails/23.jpg)
-ve S.E. & +ve I.E.Qx & Qx
Qx
Qx
Case 2inferior gd
non-giffen case
Case 3inferior gdgiffen case
Px -ve S.E. -ve I.E.Qx Qx
-ve S.E. -ve I.E.Qx Qx
Qx
Case 1normal gd
Summary
![Page 24: Effects ppt](https://reader035.vdocuments.us/reader035/viewer/2022062313/55846fa3d8b42ad1588b5338/html5/thumbnails/24.jpg)
Graphically
Px
Qx
Case 1 Normal good
Qy
0 QxQx0 Qx1Qx0’
S.E.-ve
I.E.+ve
Qx
Qx
![Page 25: Effects ppt](https://reader035.vdocuments.us/reader035/viewer/2022062313/55846fa3d8b42ad1588b5338/html5/thumbnails/25.jpg)
Graphically
Px
Qx
Case 1 Normal good
Qy
0 QxQx0 Qx1Qx0’
S.E.-ve
I.E.+ve
Qx
Qx
![Page 26: Effects ppt](https://reader035.vdocuments.us/reader035/viewer/2022062313/55846fa3d8b42ad1588b5338/html5/thumbnails/26.jpg)
Graphically
Px
Qx
Case 2 Inferior good, non-giffen case
Qy
0 QxQx0 Qx1 Qx0’
S.E.-ve
I.E.-ve
Qx
S.E.I.E. Qx
![Page 27: Effects ppt](https://reader035.vdocuments.us/reader035/viewer/2022062313/55846fa3d8b42ad1588b5338/html5/thumbnails/27.jpg)
Graphically
Px
Qx
Case 2 Inferior good, non-giffen case
Qy
0 QxQx0 Qx1 Qx0’
S.E.-ve
I.E.-ve
Qx
S.E.I.E. Qx
![Page 28: Effects ppt](https://reader035.vdocuments.us/reader035/viewer/2022062313/55846fa3d8b42ad1588b5338/html5/thumbnails/28.jpg)
Graphically
Px
Qx
Case 3 Inferior good, giffen case
Qy
0 QxQx0Qx1 Qx0’
S.E.-ve
I.E.-ve
Qx
S.E.I.E. Qx
![Page 29: Effects ppt](https://reader035.vdocuments.us/reader035/viewer/2022062313/55846fa3d8b42ad1588b5338/html5/thumbnails/29.jpg)
Graphically
Px
Qx
Case 3 Inferior good, giffen case
Qy
0 QxQx0Qx1 Qx0’
S.E.-ve
I.E.-ve
Qx
S.E.I.E. Qx