Question

The substitution effect is the change in the quantity demanded of a good that results fromâ ______________, holding constant the effect of the price change on consumer purchasing power. A. the tendency of people to be unwilling to sell something they own B. a change in the price of a substitute for the good C. a change in price making the good more or less expensive relative to other goods D. an increase in the usefulness of a product as the number of consumers who use it increases The income effect causes quantity demanded toâ ________ when the price of a normal goodâ decreases, and causes quantity demanded toâ ________ when the price of an inferior good decreases. A. âincrease; decrease B. âdecrease; increase C. âdecrease; decrease D. âincrease; increase

Answer 1

1. The substitution effect is the change in the quantity demanded of a good that results from a change in price making the good more or less expensive relative to other goods, holding constant the effect of the price change on consumer purchasing power.

2. The income effect causes quantity demanded to increase when the price of a normal good  decreases, and causes quantity demanded to  increase when the price of an inferior good decreases.

Explanation:

The quantity change required this because a rise in the market price of goods leads to a shift in relative prices, which causes consumers to exchange sales with one commodity. This is one of two factors or consequences that underlie the demand rule and the negative curve of the market demand. The second is the impact of profits.

The tax increase is the result of a change in the price of production that impacts the buying power of a specific income level. The adjustment in buying power then results in a necessary supply shift and demand shift. Price changes and revenue are set with the income effect.