increased level of utility. Exactly how much a change in price will lead to the quantity demanded of each good

will depend on personal preferences.

Anyone who faces a change in price will experience two interlinked motivations: a substitution effect and an

income effect. The substitution effect is that when a good becomes more expensive, people seek out

substitutes. If oranges become more expensive, fruit-lovers scale back on oranges and eat more apples,

grapefruit, or raisins. Conversely, when a good becomes cheaper, people substitute toward consuming more. If

oranges get cheaper, people fire up their juicing machines and ease off on other fruits and foods. The income

effect refers to how a change in the price of a good alters the effective buying power of one’s income. If the price

of a good that you have been buying falls, then in effect your buying power has risen—you are able to purchase
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