If a good is a normal good and its price increases, the income effect:
A) and the substitution effect cancel each other out, and there is no change in quantity demanded.
B) and the substitution effect work in the same direction to decrease quantity demanded.
C) has a stronger and positive effect on quantity demanded than the substitution effect.
D) has a negative effect on quantity demanded, but the substitution effect dominates, and the quantity demanded increases.

Question

Quizplus · Accepted Answer

When the price of a normal good increases, both the income effect and the substitution effect work together to decrease the quantity demanded. The income effect makes consumers feel poorer, reducing their purchasing power, while the substitution effect makes consumers switch to cheaper alternatives, both leading to a decrease in the quantity demanded of the more expensive good.

If a Good Is a Normal Good and Its Price