Question

Explain all the reasons why a decrease in a product's price would lead to an increase in purchases

Short answer

A decrease in the price of a product would result in a rise in purchases since the product is now more affordable, allowing more people to afford it and hence purchase more of it.

Step-by-step solution

Step 1:Definition

People's choices about products and services are referred to as consumer choices. When we study consumer choice behavior, we examine how consumers make long-term decisions about what to buy or consume.

Step 2:Explanation

A price decrease has both substitution and an income effect. The substitution effect states that because the product is less expensive in comparison to other items the consumer buys, he or she will buy more of it (and less of the other things).

According to the income impact, after a price decrease, a consumer could buy the same things as before and yet have money left over to buy more

Step 3:Conclusion

Therefore, a fall in price produces an increase in quantity demanded both reasons.