According to the income effect, a decrease in the price of a product leads to an increase in the quantity demanded because buyers:
A) have an implicit reduction in income.
B) have an implicit increase in income.
C) purchase fewer substitute goods.
D) purchase more substitute goods.

Question

Quizplus · Accepted Answer

When the price of a product decreases, buyers effectively have more money left over to spend on other goods and services (their purchasing power has increased). This is known as the income effect. As a result, they are more likely to buy more of the product that now costs less, and potentially even spend more money overall.

According to the Income Effect, a Decrease in the Price