To what does the income effect of a price change refer?
A)The change in demand that occurs when consumer income changes.
B)The change in the quantity demanded that results from a change in price, making the good more or less expensive relative to other goods, holding everything else constant.
C)The change in demand that occurs when both income and price change.
D)The change in the quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding everything else constant.

Question

Quizplus · Accepted Answer

The income effect of a price change refers to the change in the quantity demanded of a good that results from the effect of a change in price on consumer purchasing power, holding everything else constant. As the price of a good decreases, consumers may have more purchasing power, which can lead to an increase in quantity demanded. Similarly, as the price of a good increases, consumers may have less purchasing power, which can lead to a decrease in quantity demanded. This is the income effect of a price change.

To What Does the Income Effect of a Price Change