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That's the law of demand.
We talked about that
last time, downward
sloping demand curves.
Likewise, if the price
falls, the
substitution effect is positive.
The income effect is positive.
You're now richer because the
price of the good fell.
And so, therefore,
demand goes up.
Quantity consumed goes up, once
again, downward sloping
demand curve.
Price rises, you consume
less of it.
Price falls, you consume
more of it.
That's what we learned about
in the first lecture.
However, once goods are
inferior, all bets are off.
Because now the income effect
is the opposite sign of the
substitution effect.
It's possible it could
be larger.
So the total effect
is ambiguous.
You could actually get an upward
sloping demand curve.
You could actually get that a
price rise leads to more of a
good, and a fall leads
to less of a good.
Now will you?
Only if it's a Giffen good.
And, in fact, there's a lot of
controversy in economics about
whether any good in the world
has ever been a Giffen good.
At most, there's maybe one or
two examples people can find.
Even then, it's controversial.
So I think it's fine in life to
assume that demand curves
slope down.
I think, in fact, I don't see
convincing evidence that any
subset or set of goods
are Giffen goods.
I think it's just generally fine
it life to assume demand
curves slope down.
Nonetheless, it's important to
understand this theoretical
possibility even if it's
just theoretical.
Because it's important to
understand income and
substitution effects.