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- Subject
- Supply and Demandeconomics-mcqs › supply-and-demand
- Published
- 29 May 2019
- Last updated
- 28 May 2026
When the price of a normal good rises, how do the income effect and substitution effect each influence the quantity demanded of that good?
Multiple choice question for Supply and Demand. Select an option, then review the explanation below.
Explanation
For a normal good, an increase in price reduces the consumer's real income, causing the income effect to decrease quantity demanded. Simultaneously, the substitution effect also leads to a decrease in quantity demanded as consumers switch to relatively cheaper alternatives.
More Supply and Demand MCQs
Practice related questions from the same subject.
- 1.What is the typical shape of a demand curve?
- 2.What term describes a company earning profits beyond its normal profit level?
- 3.How does an increase in marginal cost affect output, and how does an increase in marginal revenue impact output?
- 4.Marginal revenue refers to the ________ resulting from producing an additional ________ of output.
- 5.What are firms generally assumed to do with their costs and profits?