When the price of a product falls for a good, the
A)income and substitution effects will encourage consumers to purchase more of the product.
B)income and substitution effects will encourage consumers to purchase less of the product.
C)substitution effect will encourage consumers to purchase less of the product, and the income effect will encourage them to purchase more.
D)substitution effect will encourage consumers to purchase more of the product, and the income effect will encourage them to purchase less.

Question

Quizplus · Accepted Answer

When the price of a product falls, the substitution effect makes the product more attractive compared to alternatives, leading consumers to substitute towards it. The income effect makes consumers feel effectively wealthier since they can now buy the same amount of the product for less money, potentially leading them to buy more. Both effects encourage increased consumption of the product.

When the Price of a Product Falls for a Good