We have successfully separated the total change in demand due to a price change for videos into its component income and substitution effects. As we show to the right:
VO - VN is the total change in demand
VO - VC is the change due to the substitution effect.
VC - VN is the change due to the income effect.
We saw that videos are a normal good for our consumer so that both the income and substitution effects led to reduced consumption due to a price increase. What if videos had been an inferior good for our consumer?
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