11. The substitution effect increases consumption of washing from Q1 to QS, and the income effect from QS to Q2. 12. The first term on the right-hand side represents the substitution effect, and the second term represents the income effect . 13. But while the combination of normal errors and the absence of income effects yields linear contracts, many observed contracts are nonlinear. 14. The total effect of the price drop on quantity demanded is the sum of the substitution effect and the income effect . 15. Income effect and price effect deal with how the change in price of a commodity changes the consumption of the good.16. If the good is an " inferior good ", then the income effect will offset in some degree the substitution effect. 17. Some events occur with low frequency, but have severe income effects like old-age, death in the family, and transfers from others over time. 18. An example would be the hypothetical separation of the income effect and the substitution effect of a price change, which actually go together. 19. Where it slopes upwards to the left ( showing a negative wage elasticity ), the income effect is greater than the substitution effect. 20. The result is a substitution effect because of the decreased relative price, but also an income effect due to the increased real income.
