Petrol is a normal good. If the price of petrol falls, a consumer buys more petrol because of
A) only an income effect.
B) only a substitution effect.
C) an increase in the marginal rate of substitution.
D) both an income effect and a substitution effect.

Question

Quizplus · Accepted Answer

When the price of a normal good like petrol falls, consumers experience both an income effect, where they feel richer because their purchasing power increases, and a substitution effect, where petrol becomes relatively cheaper compared to other goods, leading them to buy more petrol.

Petrol Is a Normal Good