The substitution effect of a price change leads consumers to _ their demand for goods whose prices have risen.The income effect leads consumers to buy less of all goods whose prices have risen.
A)reduce; normal
B)reduce; Giffen
C)increase; normal
D)increase; inferior
E)reduce; complement

Question

Quizplus · Accepted Answer

The substitution effect of a price change will lead consumers to seek substitutes for goods whose prices have risen, reducing their demand for those goods. The income effect, on the other hand, leads consumers to adjust their overall consumption based on changes in their purchasing power, which will cause them to buy less of all goods whose prices have risen. This applies to normal goods, not Giffen goods or inferior goods. It also does not apply to complements, which are typically consumed together and do not have a direct impact on the quantity demanded of one another.

The Substitution Effect of a Price Change Leads Consumers to _