Assume the price of Coca-Cola increases. As a result, your real income decreases and you decrease the quantity of Coca-Cola purchased each month. This is an example of the:
A) income effect.
B) consumer price effect.
C) revenue effect.
D) substitution effect.

Question

Quizplus · Accepted Answer

This scenario exemplifies the income effect, where a change in price causes a change in real income, which in turn affects the quantity of the good consumed. The other options (consumer price effect, revenue effect, and substitution effect) do not accurately describe the situation in the scenario.

Assume the Price of Coca-Cola Increases