Consider the income and substitution effects of price changes.For a product with an income elasticity greater than one,a price increase will cause the consumer's real income to
A)rise and the quantity purchased to rise.
B)fall and the quantity purchased to rise.
C)remain constant.
D)fall and the quantity purchased to fall.
E)rise and the quantity purchased to fall.

Question

Quizplus · Accepted Answer

For a product with an income elasticity greater than one, it is a luxury good. A price increase reduces the consumer's real income, leading to a decrease in the quantity purchased due to both the income and substitution effects.

Consider the Income and Substitution Effects of Price Changes