When price of a product falls, more of it is purchased because of
A)the substitution effect
B)the income effect
C)neither substitution effect nor income effect
D)both the substitution and income effects

Question

Quizplus · Accepted Answer

When the price of a product falls, both the substitution effect (consumers substitute the cheaper product for more expensive alternatives) and the income effect (consumers have more purchasing power, effectively increasing their real income) contribute to an increase in the quantity demanded.

When Price of a Product Falls, More of It Is