小二的歌
the logic of the sentence ,please! In economics, the substitution effect is when you rent a movie, instead of going to the opera, because the price of tickets rises. The income effect is when you go to the opera less because rent is so expensive I did not get the logic of the last part " The income effect is when you go to the opera less because rent is so expensive",thank you.
Sep 19, 2014 10:14 AM
Answers · 2
In economics the income effect refers to "real income". It might be easier to think of this meaning "buying power, or purchasing ability" The consumer has the same money value in income as before but because the prices are higher he or she has less "real income" meaning less power or capacity to buy things. Therefore the "income effect" refers to real income or buying power, not a change in the actual amount that a person earns. I agree that this is a strange logic, but perhaps my explanation helps.
September 19, 2014
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