Figure 6.1 -Refer to Figure 6.1.When the price of meat pies increases from $5.00 to $5.75, quantity demanded decreases from Q₁ to Q₀.This change in quantity demanded is due to A)the price and output effects. B)the income and substitution effects. C)the fact that marginal willingness to pay falls. D)the law of diminishing marginal utility.

Question

Quizplus · Accepted Answer

The change in quantity demanded due to a price increase is attributed to the income and substitution effects. The income effect refers to the change in consumption resulting from a change in real income (purchasing power), while the substitution effect is the change in consumption patterns due to a change in the relative prices of goods.

Figure 6.1 -Refer to Figure 6.1.When the Price of Meat Pies Increases