What do the income effect, the substitution effect, and diminishing marginal utility have in common?
A)All are required to explain the utility-maximizing position of a consumer.
B)They are all empirically measurable.
C)They all help explain the upsloping supply curve.
D)They all help explain the downsloping demand curve.

Question

Quizplus · Accepted Answer

These concepts all contribute to explaining why demand curves typically slope downwards, indicating that as the price of a product decreases, consumers are more likely to purchase more of it. The income effect suggests that a lower price increases the purchasing power of consumers, allowing them to buy more. The substitution effect indicates that as the price of a product decreases, it becomes relatively cheaper compared to substitutes, leading consumers to switch their purchases to the cheaper option. Diminishing marginal utility explains that the more of a good consumers have, the less additional utility (satisfaction) they get from consuming more, which influences how much they're willing to pay for additional units, contributing to a downward-sloping demand curve.

What Do the Income Effect, the Substitution Effect, and Diminishing