If $x$ is a normal good and the price of $x$ falls:
A)the substitution effect will induce the consumer to purchase more $x$ and the income effect will induce the consumer to purchase more
$x$ .
B)the substitution effect will induce the consumer to purchase more $x$ and the income effect will induce the consumer to purchase less
$x$ .
C)the substitution effect will induce the consumer to purchase less $x$ and the income effect will induce the consumer to purchase more
$x$ .
D)the substitution effect will induce the consumer to purchase less $x$ and the income effect will induce the consumer to purchase less
$x$ .

Question

Quizplus · Accepted Answer

When the price of a normal good decreases, the consumer will experience both a substitution effect and an income effect. The substitution effect occurs because the consumer will shift some of their consumption from substitute goods to the now relatively cheaper good. The income effect occurs because the consumer's purchasing power increases and they are now able to buy more of all goods, including the normal good. Since both effects are working in the same direction, the consumer will purchase more of the normal good. When the price of a normal good falls, the consumer's purchasing power increases, leading to an income effect that induces the consumer to purchase more of the good. Additionally, the lower price of the good makes it relatively more attractive compared to other goods, inducing the substitution effect to purchase more of the good. Therefore, both income and substitution effects work together to encourage the consumer to purchase more of the good.

If xxx Is a Normal Good and the Price Of xxx Falls: A)the Substitution Effect Will Induce the Consumer to Purchase

If $x$ Is a Normal Good and the Price Of $x$ Falls:
A)the Substitution Effect Will Induce the Consumer to Purchase