In general,a change in the price of a good:
A) causes a substitution effect only.
B) causes an income effect only.
C) causes both an income and substitution effect.
D) usually has no effect.

Question

Quizplus · Accepted Answer

A change in the price of a good causes both an income effect and a substitution effect. The substitution effect refers to the change in the quantity demanded of a good due to the fact that the relative price of the good has changed. The income effect refers to the change in the quantity demanded of a good due to the change in the purchasing power of income.

In General,a Change in the Price of a Good