To the right we show the ssubstitution effect alone. Even though we claim that ramen noodles are an inferior good the substitution effect is negative as before. Remember by a negative substitution effect we mean that the change in price and change in consumption are of opposite signs. Price fell and consumption rose.
Even though ramen noodles are inferior for her, after we compensate her for the fact that the price decrease made her better off she still chooses to buy more noodles, substituting ramen noodles for more expensive foods.
Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved