ABSTRACTThis paper shows how to derive the income and substitution effects of a price change in a differentiated goods model. In the process of doing so, I show how to convert a model of a vertically differentiated market into one of horizontally differentiation by constructing two market‐specific functions. One of these functions would represent the acknowledged ranking of types if the market were vertically differentiated; the other is a simple function representing the disutility associated with consuming a non‐ideal t