Typically, consumers do not use good individually, and in some combinations (sets).Set is the set of a certain number of goods that are consumed together in a specific period of time.
Change in the value of benefits at constant prices of the other is always relative.In other words, the value of a more expensive (or cheaper) on the other.Price change provokes changes in the real income of the consumer.So, to decrease the cost of the consumer to buy a smaller volume of goods, and then reduce - more.This may appear and the savings that can be used to purchase other goods.Thus, the change in value of certain values have an impact on demand structure in accordance with the two directions: the volume of demand may change due to changes in its relative value or a real consumer income.
effect of income and substitution effects arise in terms of any price change.This is due to the fact that changing the number of available goods, their relative value.Substitution effect and the income effect is a reaction of the consumer.
In the first case the structure of consumer demand changes according to the change in value of one of the benefits included in the consumption bundle.Substitution effect provides the consumer with audio reoriented value to another value during the growth of one of them.This will have the benefit of another similar consumer properties, but always cost.In other words, the substitution effect involves the tendency of the consumer to prefer cheaper goods, rather than the more expensive.As a result of a decline in demand for the original value.
called the income effect influence on the structure of consumer demand through changes in the real income of the buyer, provoked by changes in the value of the benefit.By lowering the price of one product has been some impact on the overall price level, which makes consumers wealthier.Thus, he can buy more of one product, without giving up while in the acquisition of other goods.
For normal products (goods), these effects are added together.This is due to the fact that the drop in the prices of goods triggers increased demand for them.For example, a consumer who has certain immutable income gains coffee and tea, which are normal goods.If we consider the substitution effect in this case, it will reflect the following:
- decrease in tea prices will trigger increased demand for it;
- due to the fact that the price of coffee will remain unchanged, this product will be relatively expensive (compared to the tea);
- rational consumers will replace a relatively expensive coffee is relatively cheap tea, with increased demand for the latter.
At the same time lowering the cost of tea will make the consumer somewhat richer, that is his real income will increase slightly.The profit level of the population is, the higher the normal products and demand.The increase in profit can be directed to purchase additional amounts of tea and coffee to buy.
Thus, in the same situation both effects act in the same direction.By reducing the cost of conventional products will increase the demand for them, and vice versa.Wherein the substitution effect will lead to increased demand.At the same time will increase and the real income of the consumer.Thus, there will take place and the effect of yield also increases the demand.In this situation, the law of demand.
