okay with this example we're gonna do another income and substitution effects example but with the Giffen good so we're dealing with the normal to good economy good a is gonna be a normal good on the along the vertical axis good B is gonna be a Giffen good along the horizontal axis different goods are similar to inferior goods but they're this really paradoxical case where if the price of this good increases then we expect to spend more on that good conversely if the price of this good decreases we expect to spend less on this good so let me show you how what that looks like in the two good economy with a an individual you know maximizing the utility over X you know finding the optimal consumption bundle over to goods so first off since given good is such a paradoxical example I just kind of wanted to show you what things look like with a normal good so with this diagram I've drawn here what we're doing is decreasing the price would be so what we did is we started over at this budget line here budget line sub one and then we had this old indifference curve I see someone so we started off at this consumption bundle here it had some quantity of good a you know at this point about right here so we had some consumption of good a around this quantity right here and we had we started off with this quantity if consumption could be right here and then we show a decrease in the price that could be so that's really easy to show all we have to do is push out the budget line to this point here so notice that the intersection along the quantity of good a axis stays the same because the price of good a has not changed and income hasn't changed but because the price of good B has changed it's gone down it means that if we were to spend all of our money on good B we'd be able to consume more so this intersection shifts from this point over to this point and we have a new budget line over here so and then since this is a normal good we have a very normal-looking indifference curve this indifference curve I tried to do draws pretty much as parallel as possible to our initial budget line so we have our final consumption bundle after the decrease in the price that could be to this point here so we shifted from this point to this point given a decrease in the price of could be so we started off at this quantity of could be and we shifted to this quantity of could be so rather obviously if the price of some good goes down we kind of expect our quantity of consumption of that thing to go up similarly the quantity of consumption spent on good a was at this point and then we went down at this point given the decrease in the price of could be so basically we shifted away consumption a little bit we could break down the shift from this point to this point into two effects the income and the substitution effect so first off the substitution effects given that now good B is relatively less expensive than good a we expect some kind of shift in the consumption from good a to could be so here the substitution effect is positive so as the price of good B decreases we decrease our consumption of good a from here to here and we increase our consumption to good be from this point to this point and then the income effect is the effect well first off the substitution effect so this touted parallel line here that we discussed in some other videos this has the same relative prices as the final budget line so BL sub two here is parallel to our new little hypothetical budget line so that means we have the same relative prices but we've shifted it inward so we've kind of like effectively taken away someone's income so from this point to this point we have identical relative prices but the thing we've changed is this person's income kind of theoretically their income so shifting from here to here they're on the exact same indifference curve the only difference between this budget line in this budget line par the relative prices of good a and good B so that means the shift from here to here there's no income effect whatsoever it's all substitution effect the substitution of because we've changed relative prices so as relative prices change you shift out of consumption of one good and shift into the consumption of another good so going from this point right here to this point right here it's all income effect you can see the relative prices are identical the only thing we've changed here is this person's the indifference curve that this person's on so the effect from cue BS to QB 2 is all income effect which is positive normal goods so this is a decrease in the price it could be normal goods you're gonna have a substitution effect and an income effect that are going in the same direction given this decrease so now we're gonna deal with a Giffen good and a Giffen good is this very special case ok so let's just start here we have our initial budget line and we have our own indifference curve and then what we're gonna do is we're gonna have a decrease and could be so to show a decrease in could be we need to draw a new budget line the new budget line the intersection of the budget line over here is going to be identical because the price of good a's is unchanged and we haven't changed income where is the new budget line going to intersect this horizontal axis over here because there's a decrease in the price of good b that means the budget lines is going to end somewhere over here great so we've got our new budget line here given the decrease in the price of could be so now where is the indifference curve what's the new optimal consumption bundle so this is a Giffen good so this is going to be a very special case so given the decrease in the price of good B what we're gonna need to show is a decrease in consumption of good B so this point is going to have the the new intersection is gonna have to hit the budget line then your optimal consumption bundle is gonna have to be somewhere along this point over here so so once again given a decrease in the price if could be because this is a Giffen good we're gonna have to show a decrease in the consumption of could be so the indifference curve is gonna have to intersect our new budget line somewhere in this area over here cool so this is our new indifference curve this red line running along here given the decrease in the price in good B we have this new optimal consumption bundle over here and note how I drew the budget the the new indifference curve into this super odd special way so from here to here the distance is huge and then for the difference between these two indifference curves here and here is just minut like there's basically a pixel difference between the two and difference curves and that by drawing the indifference curves that way we show that this is a Giffen good so going from this point to this point we're decreasing our consumption of could be and you can see how this is a paradoxical case because we've decreased the price of could be and yet we are decreasing our consumption it could be and that's super unusual usually if the price of something goes down in general people consume a bit more of it okay so now let's break down the move from here to here into two effects the income effect and the substitution effect so first off you know how do you show that difference between the income effect and substitution effect how do you break down the move well what you do is you start with the final budget line BL sub 2 and what we're gonna do is draw a line that's runs parallel to be L sub 2 okay so that line which I have here in a dotted line this line here has the same relative prices as our final budget line and if you remember if you increase someone's income you know you keep the same well it surprises you just shift the budget line out parallel similar if you were to take away someone's income you would shift in the budget line inwards because the the same relative the prices the reds are prices are the same so this line right here is the same relative prices but allows us to kind of shift and comes around and what we're gonna do is we're gonna move this new budget line so that it's parallel at some point to the old indifference curve so I'm gonna shift this until I could find a point where it's parallel to the old difference curve say about right there and the bundle of that point is about right here at Q to the B sub s so from this point here to this point here so that is to say the shift of consumption of corner of could be from here to here is all the substitution effect so notice that we've kept them on the same indifference curve so effectively we've kept them at identical income and all we've done is change relative prices remember that the price of quantity cough could be changed so we just shifted rows prices to show what the substitution effect is given those change in prices since good B is now relatively cheaper than good a we've shifted consumption away from a so from here to here is the decrease in consumption of a and the shift from this point to this point does it say from QB 1 to QB s is all the substitution effect and it's a positive effect given that the price of could be has gone down now the income effect is the move from this point here QB s to this level over here QB 2 so going from QBs to keep you to the income effect which is negative so from here to here we saw or you I have another video just for inferior Goods and we've already seen in Qatar that's just the definition of any Imperial good but note that from here to here this distance from QBs to QB two is greater than the distance from here to here so the substitution effect which is a positive effect it's less than income effect the negative effect so the definition of this Giffen good is that the negative income effect is more than the positive substitution effect so the income effect for this inferior good if the income effect for this inferior good overpowers the substitution effect then we have a different good so paradoxically here have a situation they're given a decrease in the price of something we are missing the consumption of this real well there's impuls we're compete it's about the tail famine the example i heard is like prices of electricity in the winter in like really cold places i know they say like university of wisconsin-madison it's so cold air that you spend usually spend so much money on heating for example so you know for the winters people spend a lot of money on heating their house in the winter and the idea is that if the price of heating goes down you know if gas or electric goes down then before give enough have enough money so that they take occasioned some kind of warmer klein so by taking a vacation and going where else they spend less money on heating in their place so with that example but the price of heating goes down which allows people to spend more money on this alternative you know like traveling to another place so they didn't have to spend money on heating in the first place where if the price of heating went up then they would be able to afford those vacations or longer vacations in warmer areas of the first place you know they had to stay home more and then spend my money on heating in the first place Giffen goods are really rare so try not to think too intuitively about it but there's a couple examples that you know theoretically I guess could exist hopefully this is helpful I try to kind of go into one of the more where they technical examples but if you have questions let me know thanks and have a good day you