You decide to decrease the quantity of ice cream purchased each month when the price increases in part because the higher price causes an implicit reduction in your income.This is an indication of the:
A) income effect.
B) utility effect.
C) consumption effect.
D) substitution effect.

Question

Quizplus · Accepted Answer

The statement "the higher price causes an implicit reduction in your income" suggests that the increase in price of ice cream impacts your purchasing power. The fact that you decide to reduce the quantity of ice cream purchased in response to the price increase indicates that the price change has affected your decision based on income considerations, which is the income effect.

You Decide to Decrease the Quantity of Ice Cream Purchased