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Author Question: What are the two effects that explain the law of demand? Briefly explain each effect. What will ... (Read 85 times)

Medesa

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on: Jun 29, 2018
What are the two effects that explain the law of demand? Briefly explain each effect.
 
  What will be an ideal response?

Question 2

On average, people in the United States spend a greater percentage of their income on health care than do people in most other countries.
 
  Indicate whether the statement is true or false
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Ahnyah

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Reply #1 on: Jun 29, 2018
Answer to Question 1

The two effects that explain the law of demand are the income effect and the substitution effect. The income effect is the change in quantity demanded of a good that results from a change in purchasing power due to a change in the good's price. The substitution effect is the change in quantity demanded of a good that results from the effect of a change in the good's price making the good more or less expensive relative to other goods that are substitutes.

Answer to Question 2

TRUE


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