Asked by Mallory Connell on May 28, 2024
Verified
Assume that beer is a normal good. If the price of beer rises, then the substitution effect results in the person buying ________ of the good and the income effect results in the person buying ________ of the good.
A) more; more
B) more; less
C) less; more
D) less; less
Substitution Effect
The change in consumption that results from a change in the relative price of goods, leading consumers to substitute away from higher-priced goods.
Income Effect
The income effect describes the change in an individual's or economy's income and how that change will affect the quantity demanded of a good or service.
Normal Good
A type of good for which demand increases as the income of the consumer increases, holding all else constant.
- Absorb the ideas of income effect, substitution effect, and wealth effect as they relate to consumer choice theory.
- Comprehend the implications of goods being classified as normal goods or inferior goods on consumer purchasing behavior.
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Learning Objectives
- Absorb the ideas of income effect, substitution effect, and wealth effect as they relate to consumer choice theory.
- Comprehend the implications of goods being classified as normal goods or inferior goods on consumer purchasing behavior.
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