When the price of a good increases, consumers buy a smaller quantity because of the ________ effect and the ________ effect.
A)substitution; income
B)normal; inferior
C)substitute; complement
D)price; quantity

Question

Quizplus · Accepted Answer

The substitution effect occurs when consumers buy less of a good because they substitute it with a cheaper alternative, while the income effect occurs when consumers have to allocate more of their income towards the more expensive good, leaving less money for other purchases.

When the Price of a Good Increases, Consumers Buy a Smaller