Question

When the price of a product​ changes,

a. it only causes an income effect by changing the purchasing power of the consumer.

b. it changes the relative price of the product causing a network effect and at the same time it changes the purchasing power of the buyer causing an income effect as well.

c. it changes the relative price of the product causing a substitution effect and at the same time it changes the purchasing power of the buyer causing an income effect as well.

d. it only causes a substitution effect by changing the relative price of the product?

Answer 1

When the price of a product changes, it causes both a substitution effect and an income effect, which leads to changes in the quantity demanded.

Step-by-step explanation:

When the price of a product changes, it causes both a substitution effect and an income effect. The substitution effect occurs when a good becomes more expensive and consumers seek out substitutes. For example, if the price of oranges increases, people may buy more apples or grapefruit instead. The income effect refers to how a change in price affects the purchasing power of the consumer. When the price decreases of a good the consumer can purchase the same quantity of goods as before and still have money left over to buy more. Both effects lead to changes in the quantity demanded.

Answer 2

C relative price » sub effect & income effect