The income effect due to a price decrease will result in an increase in the quantity demanded for
A)a Giffen good.
B)an inferior good.
C)a public good.
D)a normal good.

Question

Quizplus · Accepted Answer

The income effect due to a price decrease for a normal good will result in an increase in quantity demanded because the consumer's purchasing power has increased. As the price of the good has decreased, the consumer has additional income to purchase even more of the good. On the other hand, a Giffen good is an inferior good that has a positive income effect, meaning that as the price of the good decreases, the income effect leads to a decrease in quantity demanded. A decrease in price of an inferior good will increase the quantity demanded due to the income effect, but not as much as the substitution effect. A public good, on the other hand, has no price and is non-excludable. Therefore, the income effect can't be observed in a public good.

The Income Effect Due to a Price Decrease Will Result