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    Income and substitution effects

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    The price of meat falls in the market. Apply the substitution and income effects to the purchase of meat given the lower price. How is this related to the law of demand? Hint: use chicken as a substitute good in your discussion.

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    The income effect explains what happens to the quantity of goods demanded when people can buy more of them. For normal goods, people buy more when they are able to do so. The susbstitution effect explains what happens when the price of substitute goods change relative to each other. In this case, we're using meat and chicken. The law of demand states that all other factors being equal, ...