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Economics Presentation-PRICE EFFECT
Economics Presentation-PRICE EFFECT
Economics Presentation-PRICE EFFECT
Economics Presentation-PRICE EFFECT
Economics Presentation-PRICE EFFECT
Economics Presentation-PRICE EFFECT
Economics Presentation-PRICE EFFECT
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Economics Presentation-PRICE EFFECT

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PRICE EFFECT IN ECONOMICS

PRICE EFFECT IN ECONOMICS

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  • 1. ECONOMICS PRESENTATION<br />TOPIC- PRICE EFFECT<br />PRESENTED BY:<br />PRAVEEN KUMARROLL-882041<br />BBALLB(3RD SEM)<br />
  • 2. PRICE EFFECT<br /> It is the change in demand, in response to a change in price of a commodity, other things remaining constant.<br />Other Things:<br /> Income of the consumer, Tastes and Preference of the consumer, Price of other goods. All these are treated to be constant. <br />
  • 3. Proportionate change in Quantity demanded of x<br /> Proportionate change in Price of x<br /> Price Effect = <br />
  • 4. It is said that Price Effect is the summation of two effects :<br /><ul><li>Substitution Effect.
  • 5. Income Effect.</li></ul>PRICE EFFECT = INCOME EFFECT + SUBSTITUTION EFFECT<br />
  • 6. TO DISCUSS THE COMPONENTS<br /> Every price change therefore can be decomposed into Income Effect and Substitution Effect.<br /><ul><li>SUBSTITUTION EFFECT :</li></ul> In this effect the consumer is forced to chose a product that is less expensive for maximizing his satisfaction as the nominal income of the consumer is fixed.<br />
  • 7. INCOME EFFECT<br />The Income effect can be discussed for two types of commodities:<br /><ul><li>NORMAL GOODS : If there is a price fall real income increases due to which demand increases and vice versa.
  • 8. INFERIOR GOODS : Due to an increase in real income demand decreases.
  • 9. GIFFEN GOODS : Demand decreases when price decreases.</li></li></ul><li>

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