What do you mean by Rise in Price

What do you mean by Rise in Price?

Demand of any goods and services always show a preference or choice among the options available in the market. A consumer always buys that combination where his satisfaction is higher. In other words, we can say that demand always show a “strong order from consumer side”. We know that when there is “increase in the income, we increase our buying behaviour. Sorely demand decrease of there is a price hike of that particular goods and services”.

Rise in Price

Rise in Price

We assume that a consumer spend all his income to buy these two product. So, consumers always prefer to buy a strong combination where he will be maximum satisfaction.

If there is an increase in the price of ‘y’ goods so consumers decrease the buy of ‘y’ in the combination. A new consumer combination line is drawn ‘LN’. When there is an increase in price of ‘y’, it decreases the real income of consumer. So a consumer shift its money to buy more ‘x’ goods and drawn another line like ‘AB’. We called it “over-compensation effect”. Now, a consumer prefers to buy a combination on ‘c’, where good ‘x’ is more than the good ‘y’.