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Word Count: 314
For normal goods the demand for X varies inversely with the price of X There are two main reasons for this For any price change there is a substitution effect and an income effect For example if the price of Tesco Steak falls some consumers will switch towards Tesco steak away from other brands or other meats - because it has become relatively cheaper More utility can be gained from each pound spentThis switching of demand is called the substitution effect If the price of steak falls consumer can now afford to buy more with their incomebudget We say that their real income has increased they can buy a bigger quantity of steak per week or per monthProviding that the good has a positive income elasticity of demand the income effect will also cause the consumer to buy more Tesco steak when the price falls In this case the income and substitution effects are both working in the same direction Demand will rise when price falls The same relationship holds for an inferior good except that the income effect causes consumers to buy less when the price falls However the substitution effect is assumed to be greater so demand still expands at a lower price and contracts at a higher priceSome goods are said to ignore the normally law of demand We are talking here of Giffen Goods and Veblen Goods These are very different types of products Giffen Goods are strongly inferior Veblen goods are sometimes known as goods or services of ostentatious consumption Here demand rises with price if the market price is taken to be a sign of quality or where consumers are more concerned with the satisfaction gleaned from other people seeing them consuming expensive products Designer clothes and the Jim Keefe revision guide to A-Level Economics spring readily to mind as good examples to use
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