When a reduction in the price of a good allows a consumer to purchase more of all goods, this effect is called the:
A) income effect.
B) substitution effect.
C) elasticity effect.
D) monetary effect.

Question

Quizplus · Accepted Answer

The income effect refers to the change in purchasing power that results from a change in price. When the price of a good falls, the consumer's purchasing power increases, allowing them to purchase more of the same good and/or more of other goods as well. This is different from the substitution effect, which occurs when a change in price leads to a shift in consumption towards a substitute good. The other options, elasticity effect and monetary effect, are not commonly used terms in economics and do not accurately describe the scenario described in the question.

When a Reduction in the Price of a Good Allows