When a decrease in the price for wine increases Adam's real income,Adam will buy more of all normal goods.If wine is a normal good,then Adam will buy more wine due to
A) law of demand.
B) substitution effect.
C) income effect.
D) law of supply.

Question

Quizplus · Accepted Answer

The decrease in price of wine increases Adam's purchasing power or real income. This leads to an increase in the quantity demanded of all normal goods. This effect is known as the income effect. Therefore, if wine is a normal good, it is expected that Adam will buy more wine due to the increase in his real income.

When a Decrease in the Price for Wine Increases Adam's