Jane is a utility-maximizing consumer who is spending her entire budget on the optimal quantity of wallets and eyeglasses.The price of wallets falls.Jane will _____ her consumption of wallets if wallets are a(n)_____ good and (because)the income effect _____ the substitution effect.
A)decrease;inferior;is weaker than
B)increase;inferior;is stronger than
C)increase;normal;reinforces
D)decrease;normal;reinforces

Question

Quizplus · Accepted Answer

If wallets are a normal good, then as the price of wallets falls, Jane's purchasing power increases, leading to an increase in demand for both wallets and eyeglasses. The income effect reinforces the substitution effect, meaning that Jane will consume more of both goods in response to the fall in the price of wallets. Therefore, the correct choice is C.

Jane Is a Utility-Maximizing Consumer Who Is Spending Her Entire