What are two related effects that combine to make a consumer able and willing to buy more of a specific product at a lower price than a higher price? Explain the logic of both effects

Question

Please provide the best answer for the statement.

Answer 1

The two effects are the income and substitution effect. For most products, a price decrease gives consumers more income to spend on that product and other products, so the quantity demanded for that product increases. There are three steps in the logic for a typical product: The price falls, which gives the consumer more income to spend on that product and other products, thus increasing the quantity demanded for that product. A price decrease also makes the product a more attractive buy relative to its substitutes. Consumers will now purchase more of the relatively cheaper product instead of the now more expensive substitutes, thus increasing the quantity demanded of the product. With both effects, the end result is the same: the quantity demanded of the product increases as its price decreases.