| 11. | The substitution effect increases consumption of washing from Q1 to QS, and the income effect from QS to Q2.
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| 12. | The first term on the right-hand side represents the substitution effect, and the second term represents the income effect.
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| 13. | But while the combination of normal errors and the absence of income effects yields linear contracts, many observed contracts are nonlinear.
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| 14. | The total effect of the price drop on quantity demanded is the sum of the substitution effect and the income effect.
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| 15. | Income effect and price effect deal with how the change in price of a commodity changes the consumption of the good.
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| 16. | If the good is an " inferior good ", then the income effect will offset in some degree the substitution effect.
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| 17. | Some events occur with low frequency, but have severe income effects like old-age, death in the family, and transfers from others over time.
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| 18. | An example would be the hypothetical separation of the income effect and the substitution effect of a price change, which actually go together.
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| 19. | Where it slopes upwards to the left ( showing a negative wage elasticity ), the income effect is greater than the substitution effect.
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| 20. | The result is a substitution effect because of the decreased relative price, but also an income effect due to the increased real income.
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