ECONOMICS
GDP
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Y↑, P ↓
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Y constant, P↑
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Y↓, P↓
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Y↑, P↑
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Detailed explanation-1: -The income effect is that a higher price means, in effect, the buying power of income has been reduced (even though actual income has not changed), which leads to buying less of the good (when the good is normal).
Detailed explanation-2: -A demand curve represents the relationship between the price of a good or service and the quantity demanded for a given period of time. Typically, as the price rises, the demand falls; as a result, the curve slopes down from left to right.
Detailed explanation-3: -If the price goes up, the quantity demanded goes down (but demand itself stays the same). If the price decreases, quantity demanded increases. This is the Law of Demand. On a graph, an inverse relationship is represented by a downward sloping line from left to right.
Detailed explanation-4: -Unlike the Substitution Effect, the Income Effect can be both positive and negative depending on whether the product is a normal or inferior good. By the way we constructed them, the Substitution Effect plus the Income Effect equals the total effect of the price change.