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”.
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| 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’.
