As price of the normal goods falls, the consumer buys more of it because of ________. A. Demand effect…
When the price of a normal good falls, the consumer purchases more of it due to the total Price Effect (B), which microeconomic consumer theory (Slutsky and Hicks)…
Choose your answer
As price of the normal goods falls, the consumer buys more of it because of ________.
A. Demand effect
B. Price effect
C. Substitution effect
D. Income effect
E. Increasing marginal rate of substitution
Answer and explanation
Correct answer B
When the price of a normal good falls, the consumer purchases more of it due to the total Price Effect (B), which microeconomic consumer theory (Slutsky and Hicks) decomposes into two reinforcing components: the Substitution Effect (C) and the Income Effect (D). Thus, B, C and D only are correct.
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