Substitution and income effects of a change in price of a good may be used to explain the inverse relationship between price and quantity demanded.
The substitution effect looks at the change in price of a good relative to other goods. If the price of a good falls, it becomes cheaper relative to other goods. As a result, consumers buy more of the good relative to other goods.
The income effect looks at how a change in price affects real disposable income. When the price of a good decreases, real disposable income increases. As a result, consumers can afford to buy more of the good as the consumers purchasing power has increased, holding money income constant.
So, when price falls, there is an increase in the quantity demanded. This is an inverse relationship.
To learn more about the substitution effect, please check: https://brainly.com/question/27960823
#SPJ1
