BACHELOR OF BUSINESS ADMINISTRATION

Detailed explanation-1: -The income effect is the change in the consumption of goods by consumers based on their income (purchasing power). The substitution effect happens when consumers replace cheaper items with more expensive ones due to price changes or when their financial conditions improve, and vice-versa.

Detailed explanation-2: -When the price of a good changes, the price of that good relative to the price of other goods also changes. Relative price changes cause consumers to substitute from one good to another-this is known as the substitution effect.

Detailed explanation-3: -The income effect is the change in consumption that results when a price increase causes real income to decline.

Detailed explanation-4: -The income effect describes how a change in a consumer’s purchasing power changes their demand for products. Generally, higher levels of purchasing power lead to higher demand and more demand for high-quality goods. Increases in purchasing power can come from increased income or from decreased prices for goods.