If the price of a normal good rises,the income effect
A)will increase consumption of the good and the substitution effect will decrease consumption.
B)will decrease consumption of the good and the substitution effect will increase consumption.
C)and the substitution effect will both increase consumption of the good.
D)and the substitution effect will both decrease consumption of the good.
E)is always larger than the substitution effect.

Question

Quizplus · Accepted Answer

When the price of a normal good rises, both the income effect and the substitution effect lead to a decrease in consumption. The income effect occurs because the consumer's purchasing power decreases, making them less able to afford the good. The substitution effect occurs because the good becomes relatively more expensive compared to other goods, leading consumers to substitute away from it.

If the Price of a Normal Good Rises,the Income Effect