Answer to Question #153609 in Economics for RAHUL KUMAR SAINI

Question

downward sloping income demand curve indicates that

A. the good is a necessity.

B. the good is a normal good.

C. the good is an inferior good.

D. the good is a necessity and a normal good.

E. the good is a necessity and an inferior good. Reset Selection

Answer 1

Benefit growth effect. Reducing the price reduces consumer spending, but the utility does not change. Therefore, while maintaining the same amount of expenses, the buyer will receive more utility.

Income effect. The reduced price allows you to buy more goods for the same amount of income. This is tantamount to increasing the customer's cash income.

Substitution effect. A product that has fallen in price rises relatively in price with a rush in demand caused by the expected increase in prices;

if buyers expect further price reductions;

for rare and expensive goods (gold, jewelry, houses), which are a means of placing money;

when demand is switched to higher quality and more expensive goods.

The demand curve reflects the inverse relationship between the price and the number of goods that buyers want and can purchase per unit of time. The demand curve slopes downward because a decrease in price (all other things being equal) means an increase in demand for a product.