When the price of a product falls for a normal good, the
A) income and substitution effects will encourage consumers to purchase more of the product.
B) income and substitution effects will encourage consumers to purchase less of the product.
C) substitution effect will encourage consumers to purchase less of the product, and the income effect will encourage them to purchase more.
D) substitution effect will encourage consumers to purchase more of the product, and the income effect will encourage them to purchase less.

Question

Quizplus · Accepted Answer

When the price of a product falls, the substitution effect will encourage consumers to purchase more of the product because it becomes relatively cheaper compared to other products. Additionally, the income effect will also encourage consumers to purchase more of the product because their purchasing power has increased due to the lower price. Therefore, the overall effect on demand is an increase, leading to more purchases of the product.

When the Price of a Product Falls for a Normal