Sign of Substitution Effect | Revealed Preference Argument | 22 |

This video talks about Substitution Effect and Income Effect. (REFERENCE : Varian Ch 8)
1. Non -Positive Nature of Substitution Effect
2. Using Revealed Preference Argument to show that substitution effect is negative
This is useful for those who are preparing
1) Intermediate Microeconomics Course in their semesters
2) UGC Net Economics
3) Basics of MA Economics Entrance Exam (DSE/ISI/JNU/IGIDR/MSE)
4) Indian Economic Services
For any course related query please call 9999886629
or visit nishantmehra.com for IAS Economics Optional/ Indian Economic Services/ UGC Net Economics
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[@sanjanabhattacharjee6447]

but sir how can the optimal choice on the fictitious budget line be equal to the choice on the initial budget line? both are chosen at two different price situations and for any given price income situation only one consumption bundle can be chosen. These are behavioural assumptions of reveal preference. It should always lie to the right.
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[@prcj8]

Greetings Sir, I have a doubt ! When we draw the I.C. for the fictitious BL, how do we figure out the new I.C. ? when I read the books it seems like they are drawing it arbitrarily ! Can you please tell me how is it been drawn ?

[@Cyrus08_]

Thankyou for this amazing explanation 🙏🏼

[@hima3432]

very helpful. thankyou sir!

[@sushantakashyap6089]

Sir can you tell me substitution effect is positive or negative..because in ahuja ..it has been written that substitution effect is always negative whereas it has been positive according to Jhingan and also in Salvatore.can you clarify this point sir

[@nishantmehraecopoint]

SE is non positive. you look at, how changes in price and changes in demand move (when purchasing power is constant), they are moving in opposite direction. when price rises, demand falls (when purchasing power is held constant). This negative relation is what is negative Substitution effect

[@sushantakashyap6089]

Okay sir , that means in jhingan and in Salvatore it is not correct ..and in many books also it has been mentioned but still it leads to some confusion in me. Thank you for clearing sir ..Regards

[@nishantmehraecopoint]

@@sushantakashyap6089 I don’t think these books can write anything wrong, you may have to read again carefully. May be with clarity you will understand better

[@sushantakashyap6089]

@@nishantmehraecopoint thank you sir

[@mohsin3660]

Just to clarify
By Non - positive substitution effect, it means it can be 0