Income and Substitution Effects:     In this section we examine, in some detail, how consumers respond to changes in prices. The Income Effect we will be studying is the result of a price change, not an actual change in income. We will continue to use our two-good consumption model for this analysis.

    Suppose the price of something that you purchase regularly changes. Imagine, for example, that monthly rental prices fall (yeah, right). If rent becomes cheaper, it's like getting an increase in income. Your actual income wouldn't change, but you would have more money to spend on everything you buy.

    The reduction in rent also means that renting a place to live is now relatively cheaper, compared to the other things you spend money on, than it used to be.

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