What are the two effects of a change in the price of a good on the quantity consumed?
A)The income effect and the substitution effect.
B)The utility effect and the budget effect.
C)The total utility effect and marginal utility effect.
D)The consumption effect and expenditure effect.

Question

Quizplus · Accepted Answer

When there is a change in the price of a good, it can result in two effects - the income effect and the substitution effect. The income effect refers to the change in the quantity consumed due to the change in purchasing power that results from a change in price. The substitution effect refers to the change in the quantity consumed due to the change in relative prices of the good with respect to its substitute goods. Therefore, option A is correct. Options B, C, and D are not correct as they do not define or explain the two effects of a change in the price of a good on the quantity consumed.

What Are the Two Effects of a Change in the Price