Home › AP Microeconomics › Economics › Consumer Choices › A price rise for a normal good makes both effect…
A price rise for a normal good makes both effects push consumption of that good in which direction?
ABoth push it up
BThey cancel exactly
CNeither has effect
DBoth push it down
Answer & Solution
Correct answer: D. Both push it down
1. A price change triggers a substitution effect and an income effect together.
2. The substitution effect gives an incentive to consume less of the relatively higher priced good.
3. The income effect means the buying power of income has been reduced.
4. That leads to buying less of the good when the good is normal.
5. So for a normal good both effects push consumption down.
_Source: OpenStax Principles of Microeconomics for AP Courses 2e (CC BY 4.0), Ch 6 'Consumer Choices'_
Related questions
Diminishing marginal utility means the total utility from extra units continues to rise buConsumer equilibrium is found by comparing across goods the marginal utility:The negative slope of a budget constraint reflects that buying more of one good means:A budget constraint line with a rise of minus 8 over a run of 4 has a slope of:If overnight stays is an inferior good, the consumer instead makes a choice like:With a new budget constraint, a consumer chooses point N if both goods are:Under the income effect, reduced buying power leads to buying less of a good when the goodThe income effect describes a higher price as reducing, in effect, the: