If a consumer is buying two goods and a decrease in the price of one good results in the consumer buying more of both goods:
A) the income effect resulted in increasing the amounts of both goods purchased.
B) the demand curves for the two goods shifted to the right.
C) the substitution effect was extremely strong, but the income effect was zero.
D) none of the above statements are true.

Question

Quizplus · Accepted Answer

When the price of one good decreases, the consumer effectively has more purchasing power, which is the income effect. This can lead to an increase in the consumption of both the cheaper good and other goods, as the consumer feels wealthier or finds they have more budget to allocate across their preferences.

If a Consumer Is Buying Two Goods and a Decrease