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Substitution effect


Every price change can be decomposed into an income effect and a substitution effect. The substitution effect is a price change that changes the slope of the budget constraint, but leaves the consumer on the same indifference curve. This effect will always cause the consumer to substitute away from the good that is becoming comparatively more expensive. If the good in question is a normal good, then the income effect will re-enforce the substitution effect. If the good is inferior, then the income effect will lessen the substitution effect. If the income effect is opposite and stronger than the substitution effect, the consumer will buy more of the good when it becomes more expensive. There is a generally agreed upon example of this happening, known as a Giffen good.

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"If the income effect is opposite and stronger than the substitution effect, the consumer will buy more of the good when it becomes more expensive. There is a generally agreed upon example of this happening, known as a Giffen good."

Giffen Good is type of this good not example. Economists debate its existence. Though, authors like Dewett cite potatoes as example and some cite diamonds.
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Consumer good

In economics, any tangible commodity produced and subsequently purchased to satisfy the current wants and perceived needs of the buyer.

Consumer goods are divided into two categories,
1-Durable goods and 2-Nondurable goods.

-Consumer durable goods possess a significant life span, often three years or more, although some authorities accept one year or more. The consumption of a durable good is spread over its life span (a characteristic of capital goods), and this tends to produce a series of services, in the form of maintenance of the durable good. The length of consumption and the maintenance of durable goods are similar to those of capital goods and this sometimes makes the dividing line between the two hazy. The longevity and often higher cost of durable goods usually causes consumers to postpone expenditures on them, causing durables to be the more volatile component of consumption. Common examples of consumer durable goods are automobiles, furniture, household appliances, and mobile homes.

-Consumer nondurable goods are purchased for immediate or almost immediate consumption and have a life span ranging from minutes to three years. Common examples of nondurable goods are food, beverages, clothing, shoes, and gasoline.

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A Man Would Do Nothing,
If He Waited Until He
Could Do It So Well
That No One Would Find Fault
With What He Has Done.