Megan was an assistant manager in a firm when she had bought a Hyundai Accent L hatchback.After she was promoted to the position of a senior manager with a big pay raise, she bought a Volvo S80.This is an example of the:
A)substitution effect.
B)pricing effect.
C)supply effect.
D)demand effect.
E)income effect.

Question

Quizplus · Accepted Answer

Megan's purchase of a more expensive car after receiving a pay raise is an example of the income effect. The income effect refers to the change in a consumer's purchasing power as a result of a change in their income. In this case, Megan's increased income allowed her to purchase a more expensive car.

Megan Was an Assistant Manager in a Firm When She