can substitution effect be positve???

[Goku]

[Homer Simpson]

It can be zero or negative. Use revealed preference idea.

[Dreyfus]

Tsuki..by the way the sign of substitution effect is inversely related to price movement!....so when price falls subs effect is positive!

[Goku]

tsuki Can u plz explain how??

[phelps.phan]

hi Vaibhav, I think substitution effect cannot be positive. The reduce in price always makes people to demand more (negative), the income effect due to price change can be positive if its inferior good.
 
Ref: pg 138 Varian. "While the substitution effect must always be negative- opposite the
change in the price-the income effect can go either way"

[abhinav619]

With substitute goods such as brands of cereal, an increase in the price of one good will lead to an increase in demand for the rival product. The cross price elasticity for two substitutes will be positive.

http://tutor2u.net/economics/revision-notes/as-markets-crossprice-elasticity-of-demand.html

[Dreyfus]

Screenshot1.pngScreenshots2.pngScreenshots3.png
Hi Phelps, the line that you are talking about is exclusively based on varian's example of 'price rise' because throughout the chapter he only considered the case of price rise.
I hv attached snapshots from the same chapter, you may refer them!

[phelps.phan]

Hi Vaibhav, the negative I meant is opposite of price change. ie if price rises demand goes down due to subs effect. if price falls demand goes up due to subs effect. But it always is opposite of price movement. The income effect on the other hand need not be opposite of price movement depending on the good if it is normal or inferior. This is what I was trying to say.

[Dreyfus]

OK...that's confusing interpretation..... I thought this post is about the sign of substitution effect

[Homer Simpson]

The inverse relation of x and price is being highlighted here when purchasing power is kept intact. Here, Demand for x always moves opposite to price change - therefore its negative. I am including zero to consider the case of complementary goods - its totally an income effect based change in demand. As for giffen goods and inferior, the income effect turns out positive - in giffen goods, it manages to overpower the SE and produce meaning overall positive relationship between x and price change.