Which of the following would cause a consumer to purchase less of a good when the price of the good rises?
A) The income effect
B) The substitution effect
C) Both a and b
D) Neither a nor b

Question

Quizplus · Accepted Answer

Both the income effect and substitution effect would cause a consumer to purchase less of a good when the price of the good rises. The income effect occurs because when the price of a good rises, the purchasing power of consumers' income decreases, so they are not able to afford as much of the good as before. The substitution effect occurs because when the price of a good rises, consumers may switch to purchasing a substitute good that is cheaper, leading to a decrease in demand for the original good.

Which of the Following Would Cause a Consumer to Purchase