Which of the following occurs simultaneously with an income effect?
A) backward-bending supply curve
B) Giffen good effect
C) preferences effect
D) substitution effect

Question

Quizplus · Accepted Answer

The income effect occurs when a change in the price of a good affects the purchasing power of a consumer, leading to a change in the quantity demanded for that good or others. Simultaneously, the substitution effect occurs, which is the change in consumption patterns due to a change in the relative prices of goods, making consumers substitute away from more expensive goods towards cheaper ones.

Which of the Following Occurs Simultaneously with an Income Effect