Question

end of chapter 1.4 questions all parts end of chapter 1.7 alternate 2 questions all parts concept: demand curve shift 4 questions all parts the demand for a product is negatively related to its price changes in price and changes in quantity demanded move in the same direction. a. the quantity demanded of a product is directly related to its price. b. the quantity demanded because consumer incomes failed to increase. c. the substitution effect is the decrease in quantity demanded because consumer tastes have changed and the income effect is the decrease in quantity demanded because consumer incomes have fallen. d. the substitution effect is the decrease in quantity demanded because the product is more expensive relative to other goods and the income effect is the decrease in quantity demanded owing to the decline in consumers purchasing power.

Explanation:

The substitution effect occurs when the price of a product changes relative to other products. When a product becomes more expensive relative to others, consumers substitute it with cheaper alternatives, leading to a decrease in quantity demanded of the more - expensive product. The income effect is related to the change in consumers' purchasing power due to price changes. When the price of a product rises, consumers' real income (purchasing power) falls, and they may buy less of the product. In the context of the question, the substitution effect is the decrease in quantity demanded because the product is more expensive relative to other goods.

Answer:

C. the substitution effect is the decrease in quantity demanded because the product is more expensive relative to other goods.