In study material it is written substitution effect is always negative but in book it is positive and inferior and in book giffen goods negative income effect but in study material which should I consider?which is true ?Is book sandeep garg wrong or study material?
Shivang,
The explanation given in the study material is absolutely correct.
Substitution effect is generally negative in nature. It is calculated while considering the price of a product in relation to the other product. According to it, the fall in the price of one good makes it relatively cheaper than the other good as compared to what it was before the price fall. Thus, with a fall in price of a product, its quantity demanded rises as per the negative substitution effect.
Inferior and giffen goods have positive income effect. This is because in the income effect we talk about how the change in price changes the purchasing power of consumer and how will it affect the quantity demanded. As in the case of inferior and giffen goods, when price falls, real income of the consumer will increase and he will buy less of the inferior goods. As price and quantity demanded moves in the same direction, then income effect is positive in case of giffen goods and inferior goods.
The explanation given in the study material is absolutely correct.
Substitution effect is generally negative in nature. It is calculated while considering the price of a product in relation to the other product. According to it, the fall in the price of one good makes it relatively cheaper than the other good as compared to what it was before the price fall. Thus, with a fall in price of a product, its quantity demanded rises as per the negative substitution effect.
Inferior and giffen goods have positive income effect. This is because in the income effect we talk about how the change in price changes the purchasing power of consumer and how will it affect the quantity demanded. As in the case of inferior and giffen goods, when price falls, real income of the consumer will increase and he will buy less of the inferior goods. As price and quantity demanded moves in the same direction, then income effect is positive in case of giffen goods and inferior goods.