The table below shows the total utility associated with various units of goods X and Y.Table 7.5

-The income and substitution effects of a price change occur because:
A)consumer incomes are not constant.
B)consumer substitution rates are not constant.
C)income and substitution effects never occur simultaneously.
D)of diminishing marginal utility and the equimarginal principle.
E)of increasing marginal utility and the equimarginal principle.

Question

The table below shows the total utility associated with various units of goods X and Y.Table 7.5
 
-The income and substitution effects of a price change occur because:
A)consumer incomes are not constant. 
B)consumer substitution rates are not constant. 
C)income and substitution effects never occur simultaneously. 
D)of diminishing marginal utility and the equimarginal principle. 
E)of increasing marginal utility and the equimarginal principle.

Quizplus · Accepted Answer

The income and substitution effects occur due to the basic principles of consumer behavior, namely diminishing marginal utility and the equimarginal principle. The income effect occurs when the price of a good changes, altering the purchasing power of the consumer's income. The substitution effect occurs when the consumer switches one good for another due to the relative price changes. These effects occur simultaneously as the consumer adjusts their consumption to maximize their utility. Therefore, option D is the correct choice.

The Table Below Shows the Total Utility Associated with Various