A student asserts in class that the income and substitution effects lead to a decrease in the consumption of a normal good when the price decreases. Do you agree with the statement? Explain using an example
Please provide the best answer for the statement.
Disagree with the statement. Just the opposite is true of the income and substitution effects when the price of a normal good decreases. With a normal good such as pizza, if the price of pizza should fall, then the consumer has more real income. This increase in real income can be spent on pizza or other normal goods. Also, pizza is now cheaper relative to other substitute goods, such as hamburgers. The substitution effect means that the lower price of pizza will give the consumer an incentive to increase the quantity demanded for pizza.
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Using the table provided above, which of the following statements is TRUE?
A) Income inequality is decreasing. B) Incomes are increasing. C) Incomes are decreasing. D) Income inequality is increasing.
Trying to project total federal revenues and outlays over the next 50 years represents educated guesses at best
a. True b. False
Because there are many sellers in a competitive market, individual firms are unable to maximize profits
a. True b. False Indicate whether the statement is true or false
Which of the following statements about wages and the quantity of labor supplied is true?
a. The higher the wage rate, the lower quantity of labor supplied will be. b. Wages and quantity of labor supplied have a negative relationship. c. As the wage rate increases, the quantity of labor supplied increases. d. A decrease in the wage rate leads to an increase in the labor supplied.