The below figure shows the various combinations of the goods X and Y that yield different levels of utility.Figure 7.3

-A price change triggers the income effect but not the substitution effect.

Question

The below figure shows the various combinations of the goods X and Y that yield different levels of utility.Figure 7.3
 
-A price change triggers the income effect but not the substitution effect.

Quizplus · Accepted Answer

A price change triggers both the income effect and the substitution effect. The income effect refers to the change in quantity demanded due to the change in purchasing power resulting from the price change. The substitution effect refers to the change in quantity demanded due to the relative price change of the good compared to other goods.

The Below Figure Shows the Various Combinations of the Goods