Question
7. If the price of a normal good rises, consumers would _______ the consumption of the good by the substitution effect and ________ the consumption of the good by the income effect. A. Increase; Increase B. Increase; Decrease C. Decrease; Increase D. Decrease; Decrease
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Answer to a math question 7. If the price of a normal good rises, consumers would _______ the consumption of the good by the substitution effect and ________ the consumption of the good by the income effect. A. Increase; Increase B. Increase; Decrease C. Decrease; Increase D. Decrease; Decrease
Jon
4.6110 Answers
When the price of a normal good rises, the substitution effect leads consumers to buy less of the now relatively more expensive good and more of other goods.
The income effect comes from the fact that the price increase reduces the consumer's purchasing power, making them feel poorer.
The combination of the substitution effect and the income effect results in a decrease in the consumption of the good.
Therefore, the correct answer is:
C. Decrease; Increase
\textbf{Answer: C. Decrease; Increase}
The income effect comes from the fact that the price increase reduces the consumer's purchasing power, making them feel poorer.
The combination of the substitution effect and the income effect results in a decrease in the consumption of the good.
Therefore, the correct answer is:
C. Decrease; Increase
\textbf{Answer: C. Decrease; Increase}
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