Assume that beer is a normal good. If the price of beer rises, then the substitution effect results in the person buying ________ of the good and the income effect results in the person buying ________ of the good.

Question

Quizplus · Accepted Answer

The substitution effect means that as the price of beer rises, it becomes more expensive relative to other goods, so the person will buy less of it. The income effect means that the price increase effectively reduces the person's purchasing power, making them feel poorer, so they also buy less of the normal good.

Assume That Beer Is a Normal Good