<p>The income effect is negative for normal goods and positive for inferior goods. That is, you buy more normal goods when you are richer and less inferior goods. </p>

<p>In contrast, the substitution effect is negative when price increases and vice-versa. It always moves opposite to the price sign. </p>

CC BY-SA 3.0
2016-11-11T19:58:50.940Z
The substitution effect should also be negative when price decreases as well. The direction that price moves doesn't change the direction of the sign of the effect.
Lee Sin
CC BY-SA 3.0
2016-11-11T20:47:04.460Z
@denesp If you're going to say the income effect is negative always, then saying that the substitution effect is positive when price increases is inconsistent. If the answer had been one way or the other imo it would be correct if it had been consistent either way.
Lee Sin
CC BY-SA 3.0
2016-11-11T22:10:45.420Z
@LeeSin No one is saying what you write in your comment...
Giskard
CC BY-SA 3.0
2016-10-30T09:39:10.150Z
2016-10-31T14:32:46.337Z
2016-10-31T14:32:46.337Z
Jane
<p>You are correct on the main point. The effect is the derivative of the demand with respect to its argument (price or income), the sign of which does not depend on what the size or sign of the change in the argument is. </p>

<p>You did make a mistake: the income effect is positive for normal goods, negative for inferior goods.</p>

CC BY-SA 3.0
2016-11-11T19:59:37.613Z
The income effect is not positive for normal goods in relation to a price change (the op's question).
Lee Sin
CC BY-SA 3.0
2015-05-02T04:36:18.853Z
2015-05-02T04:36:18.853Z
Sander Heinsalu
<p>Understand the difference between the effect of income change and income effect. The effect of change in income on the demand of good under consideration is positive but in microeconomics theory income effect is something different. The effect of change in price of good  is decomposed into income effect and substitution effect. These two effects occurs when own price changes rather than the change in the subject of substituted good or change in income. Income effect means when price of a good increases(decreases), real income of consumer decreases (increases), so quantity demanded of that good decreases(increases). Therefore, decrease (increase) in real income causes negative relationship between quantity demanded and price. The negative relationship between quantity demanded and price is shown through income effect of the price change. So we call income effect is negative for normal good. Actually income effect shows the negative relationship between quantity demanded and price.
Substitution effect means when the price of a good increases (decreases), it becomes more expensive(less expensive) thn the other good, therefore its quantity demanded will decrease(increase). Substitution effect also shows negative relation between quantity demanded and price, so substitution effect is also negative.
Income effect is positive in case of inferior good and substitution effect will be negative in both cases.</p>

CC BY-SA 4.0
2020-09-13T08:12:05.827Z
2020-09-13T09:07:44.020Z
2020-09-13T09:07:44.020Z
Noman Rasheed
<p>I just want to confirm with my understanding.</p>

<p>It is correct to say that no matter price increase or price decrease, the substitution effect is always <strong>negative</strong> for both inferior goods and normal goods. Then for income effect, it is positive for inferior goods and negative for normal goods <strong>no matter price increase or decrease.</strong></p>

<microeconomics><consumer-theory>
Sign of substitution and income effect of a price change
UnusualSkill
# Sign of substitution and income effect of a price change

(Asked by: username_0 on 2015-05-02)

I just want to confirm with my understanding.

It is correct to say that no matter price increase or price decrease, the substitution effect is always **negative** for both inferior goods and normal goods. Then for income effect, it is positive for inferior goods and negative for normal goods **no matter price increase or decrease.**

**Tags:** microeconomics, consumer-theory


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## 3 answers

### Answer by username_1 on 2016-10-30. Score: 1

The income effect is negative for normal goods and positive for inferior goods. That is, you buy more normal goods when you are richer and less inferior goods.

In contrast, the substitution effect is negative when price increases and vice-versa. It always moves opposite to the price sign.

> **Comments:**
> **username_2**: The substitution effect should also be negative when price decreases as well. The direction that price moves doesn't change the direction of the sign of the effect.  
> **username_2**: @denesp If you're going to say the income effect is negative always, then saying that the substitution effect is positive when price increases is inconsistent. If the answer had been one way or the other imo it would be correct if it had been consistent either way.  
> **username_3**: @LeeSin No one is saying what you write in your comment...  

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### Answer by username_4 on 2015-05-02. Score: 0

You are correct on the main point. The effect is the derivative of the demand with respect to its argument (price or income), the sign of which does not depend on what the size or sign of the change in the argument is.

You did make a mistake: the income effect is positive for normal goods, negative for inferior goods.

> **Comments:**
> **username_2**: The income effect is not positive for normal goods in relation to a price change (the op's question).  

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### Answer by username_5 on 2020-09-13. Score: 0

Understand the difference between the effect of income change and income effect. The effect of change in income on the demand of good under consideration is positive but in microeconomics theory income effect is something different. The effect of change in price of good is decomposed into income effect and substitution effect. These two effects occurs when own price changes rather than the change in the subject of substituted good or change in income. Income effect means when price of a good increases(decreases), real income of consumer decreases (increases), so quantity demanded of that good decreases(increases). Therefore, decrease (increase) in real income causes negative relationship between quantity demanded and price. The negative relationship between quantity demanded and price is shown through income effect of the price change. So we call income effect is negative for normal good. Actually income effect shows the negative relationship between quantity demanded and price.
Substitution effect means when the price of a good increases (decreases), it becomes more expensive(less expensive) thn the other good, therefore its quantity demanded will decrease(increase). Substitution effect also shows negative relation between quantity demanded and price, so substitution effect is also negative.
Income effect is positive in case of inferior good and substitution effect will be negative in both cases.


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