Asked by Jeanette Abreu on Apr 28, 2024
Verified
If the price of a good changes so that the income effect and the substitution effect reinforce one another,this means the good is:
A) inferior.
B) always on the budget line.
C) normal.
D) not likely to be bought.
Good
An item or service that is produced for sale or use.
- Explain the effects of income and substitution on consumer choices and the demand for goods.
- Investigate the attributes of normal and inferior commodities as they relate to shifts in income and price levels.
Verified Answer
ZK
Zybrea KnightMay 04, 2024
Final Answer :
C
Explanation :
If the income effect and substitution effect reinforce one another, it means that as the price of the good increases, the quantity demanded of that good decreases. However, the decrease in quantity demanded has more to do with the fact that the good is relatively more expensive compared to other goods in the market, rather than any decrease in real income. This is indicative of a normal good. Hence, the correct answer is option C.
Learning Objectives
- Explain the effects of income and substitution on consumer choices and the demand for goods.
- Investigate the attributes of normal and inferior commodities as they relate to shifts in income and price levels.
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