A demand curve for a normal good is downward sloping due to
A) the substitution effect.
B) the combination of income and substitution effects.
C) the income effect.
D) neither the substitution effect nor the income effect.
E) the Giffen effect.

Question

Quizplus · Accepted Answer

The downward slope of a demand curve for a normal good is due to the combination of income and substitution effects. When the price of a normal good decreases, the consumer's purchasing power increases, leading to an increase in real income. This increase in real income leads to the income effect, which increases the consumer's demand for the good. At the same time, the decrease in price of the good makes it relatively cheaper than other goods, leading to the substitution effect, which also increases the consumer's demand for the good. Therefore, the combination of these effects results in a downward sloping demand curve for a normal good.

A Demand Curve for a Normal Good Is Downward Sloping