Asked by
Nicholas Farrell
on Nov 04, 2024
Verified
For inferior goods
A) the substitution and income effects of a price increase will both decrease the quantity of the good demanded.
B) the substitution and income effects of a price increase will both increase the quantity of the good demanded.
C) the substitution effect of a price increase will increase the quantity of the good demanded while the income effect of a price increase will decrease the quantity of the good demanded.
D) the substitution effect of a price increase will decrease the quantity of the good demanded while the income effect of a price increase will increase the quantity of the good demanded.
Substitution Effect
The change in consumption patterns due to a change in the prices of goods, leading consumers to replace more expensive items with cheaper alternatives.
Income Effect
The change in an individual's or economy's income and how that change will affect the quantity demanded of a good or service.
- Comprehend how alterations in prices influence consumer decisions by examining the substitution and income effects.
- Understand the effects of income variations on the consumption trends of normal and inferior goods.
Verified Answer
DH
Learning Objectives
- Comprehend how alterations in prices influence consumer decisions by examining the substitution and income effects.
- Understand the effects of income variations on the consumption trends of normal and inferior goods.