Suppose a consumer can purchase only two goods, beef and chicken. If the price of beef falls (with all other variables held constant), and the consumption of chicken increases, we can conclude that the increased consumption of chicken is due to
A) a change in the consumer's preference toward chicken.
B) the substitution effect only.
C) the income effect only.
D) neither the income effect nor the substitution effect.
E) both the income effect and the substitution effect.

Question

Quizplus · Accepted Answer

The income effect occurs because the consumer's purchasing power increases when the price of beef falls, allowing them to buy more of both goods, including chicken.

Suppose a Consumer Can Purchase Only Two Goods, Beef and Chicken