If a price decrease causes income and substitution effects that work in opposite directions, but the quantity demanded nevertheless increases, the good must be a
A) normal good
B) superior good
C) Giffen good

Question

Quizplus · Accepted Answer

A decrease in price of a normal good will lead to both an income effect, where consumers have more purchasing power and can afford to buy more of the good, and a substitution effect, where consumers switch from buying less expensive substitutes to the now cheaper good. These effects work in opposite directions, but result in an increase in quantity demanded, as stated in the question.

If a Price Decrease Causes Income and Substitution Effects That