Answer to Question #81249 in Microeconomics for Sushil Kumar Yadav

Question #81249
Price effect is the summation of income effect and substitution effect
Expert's answer
Firstly, the reduction in the price of one commodity with the constant prices of other goods represents a decrease in the relative price of this product. Lowering the price of a certain commodity will cause an increase in demand for this product from the part of the individual consumer due to the relative reduction in the price of this product.
Secondly, the reduction in the price of any product can be considered the same as increasing the real income of the consumer.
That is why the effect of price is considered as the sum of the income effect and the substitution effect.

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