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price change

Using below statment, answer/reply  in 150 words

An income effect occurs when a price change causes a person to jump to a higher or lower indifference curve.  For instance, if I had money to spend on either playing hockey or eating pizza and the price of one of them decreases, then I may decide that since I have more money, I can buy more of both items by jumping to a new indifference curve.

A substitution effect occurs when a price change causes a person to move along the same indifference curve adjusting the quantities of each item.  Using my example from above, if hockey increased in price, I may substitute some of the hockey for more pizza.  Therefore, I moved along the indifference curve by decreasing hockey and replacing it with an increase in pizza.

 

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