CAIE A-Level Economics 7.2.3 Income, Substitution and Price Effects

CAIE A-Level Economics 7.2.3 Income, Substitution and Price Effects
Cambridge International AS & A Level Economics 9708 syllabus for exams in 2026, 2027 and 20282026–2028

Practise decomposing a price change into substitution and income effects on indifference-curve diagrams and comparing normal, inferior and Giffen-good demand responses.

How this is tested

  • draw the new budget line and a compensated parallel line to isolate the substitution effect
  • identify the income effect from compensated to final equilibrium and state its direction
  • compare normal, inferior and Giffen goods by whether the income effect reinforces or outweighs substitution

Question 2

[Maximum number: 20]

With the help of a diagram, evaluate the use of indifference curve analysis to explain the relationship between a change in the price of a product and the change in an individual consumer's demand for this product.
[20]
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