After a good falls in price, consumers will tend to buy more of the good that has become cheaper and less of those goods that are now relatively more expensive. This fact is called O A. the income effect. OB. the substitution effect. OC. the wealth effect. OD. the price effect.

After a good falls in price, consumers will tend to buy more of the good that has become cheaper and less of those goods that are now relatively more expensive. This fact is called O A. the income effect. OB. the substitution effect. OC. the wealth effect. OD. the price effect.

Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter6: Consumer Choice Theory

Section: Chapter Questions

Problem 21SQ

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Concept explainers

Normal and Inferior Goods

Understanding a normal good and an inferior good is important because it tells us what will happen to demand different products during booms and recessions.

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After a good falls in price, consumers will tend to buy more of the good that has become cheaper and less of those goods that are now relatively more expensive. This fact is called
OA. the income effect.
OB. the substitution effect.
OC. the wealth effect.
O D. the price effect.

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QUESTION 8 The demand for bicycles decreases by 10 as a result of an increase in the price of bicycles. The substitution effect alone would predict a decrease of 12 units. We can conclude that O a. Bicycles are a Giffen good O b. Bicycles are inferior goods OG Bicycles have a positive elasticity of demand with respect to income O d. Substitution and income effects have the same magnitude O e. None of the proposed answers is correct