When the price of a product falls, the income effect induces the consumer to purchase more of it, while the substitution effect prompts her to buy less.

Question

Quizplus · Accepted Answer

When the price of a product falls, the income effect makes the consumer feel richer, thus encouraging them to buy more of the product, while the substitution effect makes the product relatively cheaper compared to others, also encouraging the consumer to buy more of it.

When the Price of a Product Falls, the Income Effect