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JAMB Economics 1984 Question 20

Question 20

Theory of Demand

A demand curve slopes downwards because of

  1. A.an increase in the money income of the consumer
  2. B.a decrease in the money income of the consumer
  3. C.the substitution effect and the rise in real income of the consumer
  4. D.the rise in demand for the complementary goods
  5. E.the increase in the demand for factors of production.
Show the answer and explanation

Answer: C (the substitution effect and the rise in real income of the consumer)

Explanation

When price falls, the good becomes cheaper than substitutes (substitution effect) and the buyer's real income rises (income effect), so more is bought.