When the price of a good rises,consumers buy a smaller quantity because of the ________ effect and the ________ effect.

Question

Quizplus · Accepted Answer

The substitution effect occurs when consumers react to a price increase by switching to a substitute good that is now relatively less expensive. The income effect occurs when consumers adjust their consumption patterns due to a change in their purchasing power resulting from the price increase. Both effects lead to a reduction in the quantity demanded.

When the Price of a Good Rises,consumers Buy a Smaller