The income effect of a price change results in a
A)shift of the demand curve when income changes.
B)movement along the demand curve due to a change in relative prices.
C)shift of the demand curve due to a change in purchasing power brought about by the price change.
D)movement along the demand curve due to a change in purchasing power brought about by the price change.

Question

Quizplus · Accepted Answer

The income effect is the change in quantity demanded of a good or service resulting from a change in real income, while the relative price of the good remains constant. The income effect causes a movement along the demand curve due to a change in purchasing power brought about by the price change. Therefore, the best choice is D, which states that the income effect of a price change results in a movement along the demand curve due to a change in purchasing power brought about by the price change.

The Income Effect of a Price Change Results in a