Abstract
We expect people to change their consuming behaviour when the price of a good change, but on what is this change going to be based on? Preferences are determined by the tastes of a person, so they do not depend on the person's real income. If the price of a good changes, the person will make a new choice according to her preferences. That means that she will take the best solution according to her preferences but that is feasible for her regarding new budget constraints. That is the basic idea of breaking down the change in price into a substitution effect and an income effect : the change in price drives the person to readjust her consumption first in function of her preferences, with holding her real income fixed so that she can keep the same utility, and then in function of her real income (which has been modified by this price change).
