Figure 7-1 -Refer to Figure 7-1.When the price of hoagies increases from $5.00 to $5.75,quantity demanded decreases from Q₁ to Q₀.This change in quantity demanded is due to A)the price and output effects. B)the income and substitution effects. C)the fact that marginal willingness to pay falls. D)the law of diminishing marginal utility.

Question

Quizplus · Accepted Answer

The change in quantity demanded due to a price increase is explained by the income and substitution effects. The substitution effect occurs as consumers switch to cheaper alternatives, and the income effect occurs as the price increase effectively reduces consumers' purchasing power.

Figure 7-1 -Refer to Figure 7-1.When the Price of Hoagies Increases from Hoagies