Which of the following is explained by the combination of the substitution effect and the income effect?
A)Ceteris paribus.
B)Downward sloping demand curves.
C)Market demand.
D)Equilibrium price.

Question

Quizplus · Accepted Answer

The combination of the substitution effect and the income effect helps to explain why demand curves slope downward. The substitution effect suggests that consumers will switch to alternative goods if there is a change in the price of a good, and the income effect suggests that changes in real income will affect the quantity of goods demanded. Together, these effects contribute to the downward slope of demand curves.

Which of the Following Is Explained by the Combination of the Substitution