1. Price Effect (PE)
Price Effect भन्नाले कुनै वस्तुको मूल्य परिवर्तन हुँदा त्यस वस्तुको माग हुने मात्रामा आउने कुल परिवर्तन हो।
मूल्य घट्यो भने → सामान्यतया माग बढ्छ
मूल्य बढ्यो भने → सामान्यतया माग घट्छ
Price Effect = Substitution Effect + Income Effect
2. Substitution Effect (SE)
Substitution Effect भन्नाले मूल्य परिवर्तन हुँदा, उपभोक्ताले same utility कायम राख्दै सस्तो भएको वस्तु तर्फ सर्ने प्रभाव हो।
- वस्तु सस्तो भयो → उपभोक्ता त्यस वस्तु बढी प्रयोग गर्छ
- सधैं मूल्य घटेको वस्तुतर्फ सकारात्मक (positive) हुन्छ
3. Income Effect (IE)
Income Effect भन्नाले मूल्य परिवर्तनका कारण उपभोक्ताको वास्तविक आय (real income) परिवर्तन भएर मागमा पर्ने प्रभाव हो।
(i) Normal Goods
- आय बढ्दा → माग बढ्छ
- मूल्य घट्दा → वास्तविक आय बढ्छ → माग बढ्छ
(ii) Inferior Goods
- आय बढ्दा → माग घट्छ
- मूल्य घट्दा → वास्तविक आय बढ्छ → माग घट्न सक्छ
(iii) Giffen Goods (विशेष अवस्था)
- Income effect धेरै बलियो र नकारात्मक हुन्छ
- Substitution effect भन्दा ठूलो हुन्छ
- परिणाम: मूल्य घट्दा पनि माग घट्छ
What happens when price of X changes
- Relative Price (Px/Py) change – Substitution Effect
- Real Income (M/Px) change – Income Effect
Px↓ – Relative Price (Px/Py) ↓ ⇒ X product becomes relatively cheaper, and so the consumer tries to substitute relatively cheaper X for Y, which affects the consumer’s choice equilibrium known as the Substitution Effect (SE).
Px↓ – Real Income (M/Px) ↑ ⇒ If the price of X drops, the purchasing power of the consumer increases, which affects the consumer’s decision to buy X, then it is called the Income Effect (IE).
Price Effect is defined as the effect on the consumer’s equilibrium quantity of the commodity due to a change in its own price, other things remaining the same. Such a price effect consists of the substitution effect and the income effect.
i.e. PE = SE + IE
Substitution Effect is defined as the effect on a consumer’s choice or equilibrium quantity of the commodity whose price has changed due to the relative price. It is argued that a consumer has an inherent tendency to substitute a relatively cheaper commodity for an expensive one, which affects the consumer’s equilibrium, known as the substitute effect.
Similarly, the income effect occurs due to a change in real income when the price of a commodity changes the real income of the consumer, which affects the consumer’s equilibrium, known as the income effect.
To decompose the price effect into the substitution effect and the income effect, there are two approaches, which are