Consider a downward-sloping demand curve.When the price of a normal good decreases, the income and substitution effects
A)work in the same direction to increase quantity demanded.
B)work in the same direction to decrease quantity demanded.
C)work in opposite directions and quantity demanded increases.
D)work in opposite directions and quantity demanded decreases.

Question

Quizplus · Accepted Answer

When the price of a normal good decreases, the income effect and substitution effect work in the same direction, which causes an increase in quantity demanded. The income effect states that as price decreases, consumers' purchasing power increases, allowing them to buy more of the good. The substitution effect states that as price decreases, the good becomes relatively cheaper than substitutes, prompting consumers to switch from the substitutes to the good. Together, these effects lead to an increase in quantity demanded.

Consider a Downward-Sloping Demand Curve