Steak is a normal good.If the price of steak increases,
A)the income effect on the demand for steak will reinforce the substitution effect
B)the income effect on the supply of steak will,to some extent,offset the substitution effect
C)the budget line will rotate outward
D)consumers' purchasing power will increase
E)the budget line will shift outward

Question

Quizplus · Accepted Answer

When the price of a normal good such as steak increases, consumers will experience both the substitution effect and the income effect. The substitution effect will lead consumers to buy less steak and more of a substitute good, while the income effect will reduce their purchasing power and lead them to buy less of all goods, including steak. Because steak is a normal good, the income effect will magnify the substitution effect, leading consumers to buy even less steak than they would based on the substitution effect alone. Therefore, choice A is the best answer as it correctly identifies that the income effect on the demand for steak will reinforce the substitution effect.

Steak Is a Normal Good