Housing tends to take up a substantial share of a consumer's spending. An increase in the price of housing will result in:
A) both an income and substitution effect to decrease the quantity demanded of housing.
B) both an income and substitution effect to increase the quantity demanded of housing.
C) the income effect of increasing the quantity demanded of housing and the substitution effect of decreasing the quantity demanded of housing.
D) the income effect of decreasing the quantity demanded of housing and the substitution effect of increasing the quantity demanded of housing.

Question

Quizplus · Accepted Answer

An increase in the price of housing will lead to both an income effect (less purchasing power, reducing quantity demanded) and a substitution effect (consumers may seek cheaper alternatives, reducing quantity demanded).

Housing Tends to Take Up a Substantial Share of a Consumer's