The correct answer is: C. Price effect = Income effect + Substitute effect.
The income effect is the change in the quantity demanded of a good due to a change in the consumer’s income. The substitution effect is the change in the quantity demanded of a good due to a change in the relative price of that good. The price effect is the sum of the income effect and the substitution effect.
For example, let’s say that a consumer’s income increases. This will lead to an increase in the demand for all goods, including the good in question. This is because the consumer can now afford to buy more of all goods. This is the income effect.
However, the increase in income will also lead to a change in the relative price of the good in question. This is because the consumer can now afford to buy more of other goods, which will make the good in question relatively more expensive. This will lead to a decrease in the demand for the good. This is the substitution effect.
The net effect of the income effect and the substitution effect is the price effect. In this case, the price effect will be positive, meaning that the demand for the good will increase.
However, the price effect can also be negative. This is the case when the income effect is greater than the substitution effect. In this case, the increase in income will lead to a greater increase in the demand for other goods than the decrease in the demand for the good in question. This will lead to a decrease in the overall demand for the good.