If the price of lattes, a normal good that you enjoy, falls,
A) the income and substitution effects offset each other, but the price effect leads you to buy more lattes.
B) both the income and substitution effects lead you to buy more lattes.
C) the income effect which causes you to increase your latte consumption outweighs the substitution effect which causes you to reduce your latte consumption, resulting in more lattes purchased.
D) the substitution effect which causes you to increase your latte consumption outweighs the income effect which causes you to reduce your latte consumption, resulting in more lattes purchased.

Question

Quizplus · Accepted Answer

When the price of a normal good falls, both the income effect (increased purchasing power) and the substitution effect (the good becomes relatively cheaper) lead to an increase in quantity demanded.

If the Price of Lattes, a Normal Good That You