Question

Steve went to his favorite hamburger restaurant with $3, expecting to buy a $2 hamburger and a $1 soda. when he arrived he discovered that hamburgers were on sale for $1, so steve bought two hamburgers and a soda. steve's response to the decrease in the price of hamburgers is best explained by:
a. the substitution effect.
b. the income effect.
c. the price effect.
d. a rightward shift in the demand curve for hamburgers.

Answer 1

For this case, what you should remember is the demand curve.
 The vertical axis represents the price.
 The horizontal axis represents the quantity.
 In this curve we see that the quantity demanded decreases at a higher price.
 The lower price the quantity demanded increases.
 Answer:
 b. the income effect.