For a normal good the total effect is given by:
A)the income effect.
B)the income effect plus the substitution effect.
C)the substitution effect.
D)the income effect minus the substitution effect.

Question

Quizplus · Accepted Answer

For a normal good, the total effect of a change in price is the sum of the income effect and the substitution effect. The income effect is the change in quantity demanded due to a change in purchasing power, while the substitution effect is the change in quantity demanded due to a change in relative prices. Therefore, the correct answer is B, the income effect plus the substitution effect.

For a Normal Good the Total Effect Is Given By