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Hicks and Allen explained the downward slope of the demand curve through which pair of components of the price effect?
ATied demand and derived demand
BSnob effect and Veblen effect
CBandwagon effect and demonstration effect
DSubstitution effect and income effect
Answer & Solution
Correct answer: D. Substitution effect and income effect
1. The price effect is the sum of two components.
2. Hicks and Allen explained the law using these two components.
3. They are the substitution effect and the income effect.
4. Hence the correct pair is substitution effect and income effect.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 2 Unit I "Law of Demand and Elasticity of Demand", p.9_
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