An imaginary adjustment of a consumer's income at the same instant a price changes, so the consumer has just enough to buy the same goods and services at the new price is:
A) the substitution effect.
B) the income effect.
C) an income-compensated price change.
D) a price-compensated utility change.

Question

Quizplus · Accepted Answer

This scenario is known as an income-compensated price change, where the consumer's income is adjusted to reflect the price change so that they can still afford the same goods and services as before. The substitution effect refers to the change in the quantity demanded of a good due to a change in its relative price compared to other goods, while the income effect refers to the change in quantity demanded due to a change in income level. A price-compensated utility change is not a commonly used term in economics.

An Imaginary Adjustment of a Consumer's Income at the Same