If the price of gasoline goes up, and Jacob now buys fewer candy bars because he has to spend more on gas, this would best be explained by
A) the substitution effect.
B) the income effect.
C) the highly elastic demand for gasoline.
D) all of the above.

Question

Quizplus · Accepted Answer

The income effect explains how a change in the price of a good affects consumer purchasing power and consumption of other goods. As gasoline prices rise, Jacob has less disposable income to spend on candy bars, leading him to buy fewer of them.

If the Price of Gasoline Goes Up, and Jacob Now