When the price of one good increases,the associated income effect is represented by a move from one indifference curve to a:
A) lower indifference curve since real income is now higher.
B) lower indifference curve since real income is now lower.
C) higher indifference curve since real income is now higher.
D) higher indifference curve since real income is now lower.

Question

Quizplus · Accepted Answer

The income effect shows the change in the quantity demanded of a good or service resulting from a change in real income, i.e., purchasing power. When the price of one good increases, the purchasing power of the consumer decreases. As a result, the consumer moves to a lower indifference curve, indicating a lower level of satisfaction or utility. Therefore, the correct option is B.

When the Price of One Good Increases,the Associated Income Effect