The net change in quantity demanded of a good following a price change
A)is equivalent to the substitution effect
B)is equivalent to the income effect
C)must decrease as marginal utility rises
D)is negative only when the income effect is negative
E)reflects both the substitution and income effects

Question

Quizplus · Accepted Answer

The net change in quantity demanded reflects both the substitution and income effects. When the price of a good decreases, the substitution effect leads consumers to buy more of that good and less of its substitutes, while the income effect depends on whether the good is normal or inferior. If the good is normal, the consumer can now afford to buy more of it, which leads to an increase in quantity demanded. If the good is inferior, the consumer will switch towards more expensive substitutes, leading to a decrease in quantity demanded. Therefore, the net change in quantity demanded reflects both of these effects.

The Net Change in Quantity Demanded of a Good Following