You decide to increase the quantity of pizza purchased each month when the price decreases in part because the lower price causes an implicit increase in your income.This is an indication of the:
A) output effect.
B) income effect.
C) substitution effect.
D) distribution effect.

Question

Quizplus · Accepted Answer

The increase in quantity of pizza purchased as a result of the decrease in price is due to the income effect. The lower price of pizza causes an implicit increase in the consumer's purchasing power, which in turn leads to an increase in demand for pizza. The output effect refers to the change in quantity demanded due to a change in price while holding real income constant, and the substitution effect refers to the change in quantity demanded due to a change in relative prices of goods. The distribution effect is not relevant to this scenario.

You Decide to Increase the Quantity of Pizza Purchased Each