For normal goods the income effect is:
A)ambiguously related to the price.
B)positively related to the price.
C)negatively related to the price.
D)unrelated to the price.

Question

Quizplus · Accepted Answer

For normal goods, as the price decreases, the consumer's purchasing power increases, leading to an increase in quantity demanded (the substitution effect) and an increase in the consumer's real income. The increase in real income, in turn, leads to an increase in demand (the income effect). Therefore, the income effect is negatively related to the price.

For Normal Goods the Income Effect Is