The income effect can refer to a change in:
A)income because of a change in business investment.
B)money or nominal income because of a change in wages.
C)the quantity demanded of a good because of an implicit change in the buyer's income caused by a change in the price of a good or service.
D)the quantity demanded of a good because of a change in the buyer's preferences.

Question

Quizplus · Accepted Answer

The income effect refers to the change in the quantity demanded of a good caused by a change in the buyer's income, which in turn is caused by a change in the price of a good or service. As the price of a good falls, the buyer's real income increases, leading to an increase in the quantity demanded of that good. Similarly, as the price of a good rises, the buyer's real income decreases, leading to a decrease in the quantity demanded of that good. The income effect is an important concept in economic theory, as it helps explain how changes in prices affect consumer behavior.

The Income Effect Can Refer to a Change In