The income and substitution effects will both induce the consumer to buy more of a normal good when its price decreases.

Question

Quizplus · Accepted Answer

When the price of a normal good decreases, the income effect makes the consumer feel wealthier, thus they can afford to buy more of the good. The substitution effect causes the good to become relatively cheaper compared to other goods, making the consumer substitute away from these other goods towards the now cheaper normal good. Both effects work together to increase the quantity demanded of the normal good.

The Income and Substitution Effects Will Both Induce the Consumer