When the income effect moves in the same direction as the _______ effect, a greater income effect contributes to a _______ price elasticity of demand.
A) substitution; greater
B) substitution; smaller
C) demand; greater
D) budget; smaller

Question

Quizplus · Accepted Answer

When the income effect moves in the same direction as the substitution effect, it means that both effects are reinforcing each other in influencing the quantity demanded as price changes. This reinforcement contributes to a greater price elasticity of demand, as consumers are more responsive to price changes due to both effects working together.

When the Income Effect Moves in the Same Direction as the _______