The value of a piece of land,held as an asset,increased in value by 200 percent from 1985 to 2012.Suppose during the same period average prices in the economy rose by 165 percent.The owner of the land,relative to those who do not own land,experienced a:
A) Higher real wealth as a result of the wealth effect.
B) Higher real income as a result of the price effect.
C) Lower real income as a result of the income effect.
D) Higher real income as a result of the income effect.

Question

Quizplus · Accepted Answer

The owner of the land experienced a higher real wealth as a result of the wealth effect. The increase in the value of the land exceeds the increase in the average prices in the economy, so the owner's real wealth has increased. This is the result of the wealth effect, which occurs when an individual's perceived wealth increases due to an increase in the value of their assets.

The Value of a Piece of Land,held as an Asset,increased