When the price of a normal good decreases, people buy _______ of the good due to _______.
A) more; the substitution effect only
B) less; the substitution effect only
C) more; the substitution and income effects
D) less; the income effect only

Question

Quizplus · Accepted Answer

When the price of a normal good decreases, people buy more of it due to both the substitution effect (the good becomes cheaper relative to other goods, so people substitute towards it) and the income effect (people feel richer because their purchasing power increases, allowing them to buy more).

When the Price of a Normal Good Decreases, People Buy