Social Sciences and History / Unit 13 SSH 1227 short lesson, about 20 seconds
Income Effect, Substitution Effect, Loss Aversion
Captions available
The idea
When a price rises, two effects always occur together. The substitution effect: buy less of the dearer good, more of the cheaper. The income effect: the buying power of income has fallen. Behavioral economics adds psychology: people value a dollar lost more than a dollar gained.
In practice
Over-withholding taxes to be sure of a refund.
Where people slip
Fungible: units equally valued; behavior says otherwise.
Your place on the trail
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Unlocks
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