BASIC ECONOMICS PRESENTATION

Group 2 - QTKSTA01

BASIC ECONOMICS

Ha Phuongslide, content, present

Ngoc Maicontent, present

Thien Minhcontent, present

Income Effects

How Changes in Prices Affect Consumer Behavior

Substitution Effects

1. Income Effects

The income effect concerns change in demand for a product due to change in income relative to market prices (purchasing power)

1. Income effects

Direct

When a consumer chooses to make changes to the way they spend because of a change in income

Indirect

When a consumer is faced with making buying choices because of factors not related to their income

The price of a good

1. Income effects

They will likely reduce their consumption of that good

The price of a good

The consumer's purchasing power

They will likely increase their consumption of that good

The consumer's purchasing power

2. Subtitution Effects

• The substitution effect concerns change in demand for a product due to a relative change in prices and the availability of substitutable products

• If the price of a good increases relative to the price of another good, consumers will switch their consumption towards the cheaper good

2. Subtitution effects

2. Subtitution effects

2. Subtitution effects

• A small reduction in price may make an expensive product more attractive to consumers, which can also lead to the substitution effect

• Companies experience the substitution effect, too, e.g., when they outsource production to take advantage of cheaper labor costs

3. Conclusion

Describes how consumption is impacted by changing relative income and prices

Expresses the impact of increased purchasing power on consumption

Subtitution Effects

Income Effects

Both

Work together to determine how consumers react to changes in prices The overall effect on consumer behavior will depend on the relative strength of these two effects

References

1. https://www.investopedia.com/ask/answers/041415/whats-difference-between-income-effect-and-substitution-effect.asp
2. https://www.indeed.com/career-advice/career-development/substitution-effect-vs-income-effect
3. https://pressbooks.oer.hawaii.edu/principlesofmicroeconomics/chapter/6-2-how-changes-in-income-and-prices-affect-consumption-choices/

Thanks for your attention!