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Microeconomic Theory

Notes Which possibility has happened is really hard to describe till we observe the full observation about the
behaviour of consumer.

4.38 Summary

• General goods are those which substitution effect is negative but income effect is positive. In fact,
the substitution effect is always negative. It means the demand of product increases if the cost of
product lessens and the demand is less when it costs more. The meaning of positive income effect is
the increasing of real income by falling of product pricing and thus the demand increases. In other
words, income effect always represents the relation between real income and demanded quantity
but hints the negativity relation between pricing and demanded quantity.

4.39 Keywords

• Indifference Schedule: Indifference Column
• Marginal Substitution: Stability of slope
• Income Effect: The changes in income

4.40 Review Questions

1. What is indifference curve? Describe it.
2. What do you mean by Marginal Substitution Rate?
3. What is the budget line? Explain it.
4. Explain the Price Consumption Curve.

Answers: Self Assessment
1. Movement 2. Indifference 3. Income 4. (b)
5. (b) 6. (a) 7. (d) 8. True
9. False 10. True 11. True 12. False

4.41 Further Readings

1. Microeconomics—David Basenco and Ronald Brutigame, Wiley India, 2011, PBK, 4th Edition.
2. Microeconomics—Shipra Mukhopadhyay, Annie Books, 2011.
3. Microeconomics: An advanced treatise—S.P.S. Chauhan, PHI Learning.

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