Answer:
Income effect
Substitution effect
Diminishing marginal utility
Explanation:
The demand curve in downward sloping. The demand curve shows that the higher the price, the lower the quantity demanded and the lower the price, the higher the quantity demanded.
The income effect says that if prices fall, a consumer would be able to buy more quantities of the good as the consumer's real income rises. Conversely, if prices rise , the consumer would be able to buy less quantities of the good as the consumer's real income falls.
In the question ,when the price of cupcakes fall, the quantities purchased increases.
Substitution effect assumes that If the prices of a good falls, consumers would substituite the consumption of other goods for the good whose price fell. As a result, the quantity demanded of the good whose price falls increases. Conversely, if the price of a good rises, consumers would substituite the consumption of the good for cheaper goods.
In the question, when the price of the cereal increases, the consumer substituites the consumption of the cereal for a generic cereal.
Diminishing marginal utility states that as more and more of the quantity of a good is consumed ,the level of utility derived from the consumption of the good falls and the quantity consumed falls.
I hope my answer helps you.
