7th December 2019


How does a substitute affect demand?

A bus pass, for example, will increase in demand when the relative price of cars increases. Therefore, a bus pass would be both a substitute good and an inferior good. When relative prices decrease or income increases, the demand for inferior goods decreases.

Besides, what is the price effect?

The price effect is the impact on the market based on how the consumer is spending money as a result of the income effect. The income effect is the manner in which a consumer spends money or demands services and goods based on an increase or decrease in his income.

What is substitution effect of demand?

In economics and particularly in consumer choice theory, the substitution effect is one component of the effect of a change in the price of a good upon the amount of that good demanded by a consumer, the other being the income effect.
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