Figure 12.4 -Refer to Figure 12.4.Which of the following is true at W₂?

Question

Quizplus · Accepted Answer

At point W₂, the quantity demanded has increased (from Q1 to Q2) due to the decrease in price (from P1 to P2). This can be explained by both the income effect (the increase in real income due to the lower price) and the substitution effect (the incentive to switch to the cheaper good). However, the income effect is larger than the substitution effect at this point because the demand has increased more than it would have due to the substitution effect alone. Therefore, choice A is correct. The other choices are not relevant to the information given in the graph.

Figure 12.4 -Refer to Figure 12.4.Which of the Following Is True at Is