A demand curve for a normal good is downward sloping due to
A)the income effect.
B)the substitution effect.
C)the combination of income and substitution effects.
D)neither the substitution effect nor the income effect.
E)the Giffen effect.

Question

Quizplus · Accepted Answer

The downward slope of the demand curve for a normal good is due to both the income effect and substitution effect. The income effect is the change in quantity demanded that results from a change in purchasing power. As the price of a good decreases, consumers' purchasing power increases, leading them to buy more of the good. The substitution effect is the change in quantity demanded that results from a change in the relative price of a good compared to other goods. As the price of a good decreases relative to other goods, consumers are more likely to substitute that good for others, leading to an increase in quantity demanded. Therefore, the downward sloping demand curve for a normal good is due to both effects working together.

A Demand Curve for a Normal Good Is Downward Sloping