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- Substitution_effect abstract "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.When a good's price decreases, if hypothetically the same consumption bundle were to be retained, income would be freed up which could be spent on a combination of more of each of the goods. Thus the new total consumption bundle chosen, compared to the old one, reflects both the effect of the changed relative prices of the two goods (one unit of one good can now be traded for a different quantity of the other good than before as the ratio of their prices has changed) and the effect of the freed-up income. The effect of the relative price change is called the substitution effect, while the effect due to income having been freed up is called the income effect. If income is altered in response to the price change such that a new budget line is drawn passing through the old consumption bundle but with the slope determined by the new prices and the consumer's optimal choice is on this budget line, the resulting change in consumption is called the Slutsky substitution effect. The idea is that the consumer is given enough money to purchase her old bundle at the new prices, and her choice changes are seen.If instead, a new budget line is found with the slope determined by the new prices but tangent to the indifference curve going through the old bundle, the difference between the new point of tangency and the old bundle is the Hicks substitution effect. The idea now is that the consumer is given just enough income to achieve her old utility at the new prices, and how her choice changes is seen. The Hicks substitution effect is illustrated in the next section.Some authors refer to one of these two concepts as simply the substitution effect. The popular textbook by Varian describes the Slutsky variant as the primary one, but also gives a good explanation of the distinction.The same concepts also apply if the price of one good goes up instead of down, with the substitution effect reflecting the change in relative prices and the income effect reflecting the fact the income has been soaked up into additional spending on the retained units of the now-pricier good.".
- Substitution_effect thumbnail Hicks_Substitution_effect.svg?width=300.
- Substitution_effect wikiPageID "469730".
- Substitution_effect wikiPageLength "3793".
- Substitution_effect wikiPageOutDegree "9".
- Substitution_effect wikiPageRevisionID "664249790".
- Substitution_effect wikiPageWikiLink Budget_constraint.
- Substitution_effect wikiPageWikiLink Category:Microeconomics.
- Substitution_effect wikiPageWikiLink Consumer_choice.
- Substitution_effect wikiPageWikiLink Consumer_choice_theory.
- Substitution_effect wikiPageWikiLink Economics.
- Substitution_effect wikiPageWikiLink File:Hicks_Substitution_effect.svg.
- Substitution_effect wikiPageWikiLink Income_effect.
- Substitution_effect wikiPageWikiLink Income–consumption_curve.
- Substitution_effect wikiPageWikiLink Indifference_curve.
- Substitution_effect wikiPageWikiLink Relative_price.
- Substitution_effect wikiPageWikiLinkText "Substitution (Slutsky) Matrix".
- Substitution_effect wikiPageWikiLinkText "Substitution effect".
- Substitution_effect wikiPageWikiLinkText "substitution effect".
- Substitution_effect hasPhotoCollection Substitution_effect.
- Substitution_effect wikiPageUsesTemplate Template:Reflist.
- Substitution_effect subject Category:Microeconomics.
- Substitution_effect hypernym Component.
- Substitution_effect type MilitaryUnit.
- Substitution_effect comment "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.When a good's price decreases, if hypothetically the same consumption bundle were to be retained, income would be freed up which could be spent on a combination of more of each of the goods.".
- Substitution_effect label "Substitution effect".
- Substitution_effect sameAs m.011lbbpn.
- Substitution_effect sameAs Q18386046.
- Substitution_effect sameAs Q18386046.
- Substitution_effect wasDerivedFrom Substitution_effect?oldid=664249790.
- Substitution_effect depiction Hicks_Substitution_effect.svg.
- Substitution_effect isPrimaryTopicOf Substitution_effect.