The income effect isolates the change in the consumption of a good caused by the change in:
A) "real" income.
B) the relative prices of two goods.
C) consumer preferences.
D) None of the preceding statements is correct.

Question

Quizplus · Accepted Answer

The income effect isolates the change in consumption of a good caused by the change in "real" income, which refers to the amount of goods and services a consumer can purchase with their income. As income changes, the purchasing power of the consumer changes, which affects their consumption patterns.

The Income Effect Isolates the Change in the Consumption of a Good