If the price of muffins, a normal good you enjoy, rises,
A) the income and substitution effects offset each other, but the price effect leads you to buy fewer muffins.
B) both the income and substitution effects lead you to buy fewer muffins.
C) the substitution effect which causes you to decrease your muffin consumption outweighs the income effect which causes you to increase your muffin consumption, resulting in fewer muffins purchased.
D) the income effect which causes you to decrease your muffin consumption outweighs the substitution effect which causes you to increase your muffin consumption, resulting in fewer muffins purchased.

Question

Quizplus · Accepted Answer

When the price of a normal good like muffins rises, both the income effect (reduced purchasing power) and the substitution effect (muffins become relatively more expensive compared to other goods) lead to a decrease in the quantity demanded.

If the Price of Muffins, a Normal Good You Enjoy