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Economics 101: Substitution Effect | SterlingTerrell.net

Economics 101: Substitution Effect

What is the income effect?

The Income Effect is a change in consumption when a customers preferences move up or down, along, an indifference curve.

For example:

I might be indifferent between eating four pizzas or two cheeseburgers per week.

But if the price of pizza increases, I might then be indifferent between another combination involving less pizza and more cheeseburgers.