Theory of Consumer's Demand-Price Income and Substitution Effects (IEcoS (Economic Services) Economics Paper-1): Questions 1 - 4 of 4

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Question number: 1

» Theory of Consumer's Demand » Price Income and Substitution Effects

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Appeared in Year: 2011

Essay Question▾

Describe in Detail

Define the compensated Demand Curve. How does it differ from the uncompensated Demand curve?

Explanation

  • Compensated Demand Curve is a demand curve that shows the change in demand of a good when the price changes but the real income or purchasing power is held constant.
  • While the compensated demand curve demonstrates only the substitution effect, the uncompensated demand curve describes both the substitution and income effects of the changes in pr

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Question number: 2

» Theory of Consumer's Demand » Price Income and Substitution Effects

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Appeared in Year: 2011

Essay Question▾

Describe in Detail

Define income effect, substitution effect and price effect of any change in price. Show that the price effect can be decomposed into the income effect· and the substitution effect.

Explanation

  • Substitution effect means the change in the demand of a good due to a change in the rate of exchange between two goods (relative prices) holding the purchasing power constant. On the other hand, Income effect is the change in the demand due to a change in the real income while the relative prices are held constant.

  • Price effect is the sum of

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Question number: 3

» Theory of Consumer's Demand » Price Income and Substitution Effects

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Appeared in Year: 2017

Essay Question▾

Describe in Detail

Define the method of Compensating Variation of lncome and the method of Cost Difference. Why is the latter method superior to the former one?

Explanation

  • In economics, compensating variation is a measure of utility change introduced by John Hicks. ‘Compensating variation’ refers to the amount of additional money an agent would need to reach its initial utility after a change in prices, or a change in product quality, or the introduction of new products.

  • In Slutsky’s approach, income is reduc

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Question number: 4

» Theory of Consumer's Demand » Price Income and Substitution Effects

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Appeared in Year: 2016

Essay Question▾

Describe in Detail

Define substitution effect. Separate the income effect from substitution effect for a fall in the price of a Giffen type good using a suitable diagram.

Explanation

Substitution effect is defined as the change in the quantity purchased of a good as a result of a change in its relative price alone, real income or level of satisfaction remaining constant.

Image Shows Of The Commodity Y to X

Image Shows of the Commodity Y to X

Image Shows Of The Commodity Y to X

Figure-1 Price-demand relationship in case of a giffen good

  • Some inferior goods

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