FIGURE 6-4
-Refer to Figure 6-4.For both goods,the price falls from P₀ to P₁.The substitution effect is illustrated by the change in quantity demanded from A to B; the income effect is illustrated by the change in quantity demanded from B to C.Good Y is certainly a(n) ________ good.

Question

FIGURE 6-4 -Refer to Figure 6-4.For both goods,the price falls from P<sub>0</sub> to P<sub>1</sub>.The substitution effect is illustrated by the change in quantity demanded from A to B; the income effect is illustrated by the change in quantity demanded from B to C.Good Y is certainly a(n) ________ good. A) normal B) inferior C) luxury D) necessity E) Giffen

Quizplus · Accepted Answer

Since the quantity demanded of Good Y increases as a result of the decrease in price, it is a normal good. The income effect causes the consumer to purchase more of the good because their purchasing power has increased with the lower price. The substitution effect causes the consumer to purchase more of the good because it is now relatively cheaper compared to other goods. Therefore, the overall effect of the price decrease is an increase in quantity demanded for Good Y, which is consistent with a normal good.

FIGURE 6-4 -Refer to Figure 6-4.For Both Goods,the Price Falls from P0

FIGURE 6-4 -Refer to Figure 6-4.For Both Goods,the Price Falls from P₀