A change in the price of a good has two effects on the quantity consumed.What are these effects?
A)the income effect and the substitution effect
B)the utility effect and the budget effect
C)the total utility effect and marginal utility effect
D)the consumption effect and expenditure effect

Question

Quizplus · Accepted Answer

A change in the price of a good has two effects on the quantity consumed – the income effect and the substitution effect. The income effect is the change in quantity demanded due to the change in purchasing power of consumers caused by the change in price. The substitution effect is the change in quantity demanded due to the change in relative prices of goods, which leads consumers to substitute the expensive good with a cheaper alternative.

A Change in the Price of a Good Has Two