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What Is The Substitution Effect?

2010/6/25 18:59:00 42
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Substitution Effect


The substitution effect is when consumers buy two kinds of goods, because a commodity price drops and a commodity price remains unchanged, consumers will buy more cheap goods and buy less expensive goods.


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What Is The Income Effect?

The income effect is that when consumers buy two kinds of goods, the nominal price of a commodity decreases, which can increase the purchasing power of the existing monetary income and purchase more commodities to achieve a higher level of effect.