The income effect is:
A) represented by a pivot in the budget constraint from a change in price.
B) the change in consumption caused by a change in purchasing power from a price change.
C) an increase in price caused by a change in market demand from an increase in income.
D) the increase in the price of leisure caused by higher wages.

Question

Quizplus · Accepted Answer

The income effect is the change in consumption caused by a change in purchasing power resulting from a price change. It shows how a price change affects the quantity of goods and services consumers are able to purchase, given their income level.

The Income Effect Is