When the price of a normal good falls, then:
A) both the income and substitution effects combine to cause the quantity demanded to increase.
B) the substitution effect will cause people to buy more because the good is relatively less expensive.
C) the income effect will cause people to buy more because of the increased purchasing power associated with the lower price.
D) all of these.

Question

Quizplus · Accepted Answer

When the price of a normal good falls, both the substitution effect (making the good relatively cheaper compared to others) and the income effect (increasing purchasing power) lead to an increase in quantity demanded.

When the Price of a Normal Good Falls, Then