Multiple choice

When there is a fall in the price of a commodity, the consumer's purchasing power increases. The increase in real income induces him to buy more of that commodity. Hence, demand for that commodity increases. This is called

  1. demonstration effect

  2. substitution effect

  3. veblen effect

  4. income effect
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

When the price of a commodity falls, the consumer can buy the same quantity of the commodity with less money. This is called income effect.

Keep practicing — related questions