Price Effect

• Price effect shows the change in demand of the consumer to changes in the price of a commodity, other things remaining the same.
• It measures the change in the amount demanded of a commodity, with a difference in its price when the price of the other remains the same.
• It is the full effect of change in price.
• It is measured by the change in equilibrium position of the consumer resulting from a difference in the price of one of the commodities.
• If the price falls, the consumer goes over to a higher IC
• If price rises, consumer moves to a lower IC
• PE is the result of two effects: income effect and substitution effect