The substitution effect and the _____ effect help explain why a fall in a good's price tends to increase quantity demanded.

### Why this is right A price fall makes a good cheaper relative to substitutes and increases consumers' purchasing power. The note calls these responses the substitution effect and the income effect. ### The concept The substitution effect occurs when consumers switch toward a good that has become less expensive compared with alternatives. The income effect occurs because the same money income can now buy more. Together, these mechanisms help explain the usual inverse relationship between a good's own price and quantity demanded. ### Terms - **Substitution effect**: the change in purchasing caused by a good becoming cheaper or more expensive relative to alternatives. - **Income effect**: the change in purchasing caused by a price change altering real purchasing power. - **Real income**: the quantity of goods and services that money income can buy. ### Remember A price fall changes both relative prices and purchasing power.