People’s budget, income, and substitution effects are connected in demand theory. If the price of some product (beef, for example) is growing, and income (budges) stay on the same level, people start to substitute this product with another (cheaper). These actions are called substitution effects. In case of beef, such a substitution products could be pork, poultry, etc. Substitution effect is one of the core principles of behavioral economics (Hursh, p. 435). People always react to any economic changes, and the most common reaction to changes in prices is changes in budget dispersion. With the same level of ...
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