The income effect means that when the price of a good rises:
A) the buying power of your income has been reduced
B) consumers have an incentive to consume less of the good with a relatively higher price and more of the good with a relatively lower price
C) your preferences also change
D) you buy more normal goods and fewer inferior goods

Question

Quizplus · Accepted Answer

The income effect indicates that when the price of a good increases, the buying power of the consumer's income is reduced, which affects the consumer's purchasing decisions. As a result, they will buy less of the good with a higher price.

The Income Effect Means That When the Price of a Good