Final answer:
A consumer typically responds to a negative incentive like a price increase by decreasing the use of the product due to the substitution effect and the income effect. Conversely, a price decrease can lead to an increase in quantity demanded as the goods become cheaper and consumers’ purchasing power increases. The correct option is a.
Step-by-step explanation:
In the market, consumer behavior is often influenced by actions known as incentives. When faced with a negative incentive, like an increase in the price of a product, the typical consumer reaction is to decrease the use of the product to save money. This is because of two principal effects: the substitution effect and the income effect.
The substitution effect occurs when a consumer chooses a different product as a result of a price change. For example, if the price of oranges goes up, consumers might buy more apples, grapefruit, or raisins instead. On the flip side, a decrease in price can make a product relatively cheaper than its substitutes, leading consumers to purchase more of the cheaper product. Similarly, the income effect suggests that a decrease in price effectively increases a consumer's buying power, enabling them to purchase more with the same income. Consequently, a drop in price generally leads to an increase in the quantity demanded of the product.