The price of good X falls.The income-effect of this price change:
A)will usually cause X purchases to increase.
B)will usually cause X purchases to decrease.
C)may cause X purchases either to increase or decrease, there being no "usually" consequence.
D)by definition, neither increases nor decreases X purchases.
E)will not apply, since income-effects refer to changes in spendable income, not to price changes.

Question

Quizplus · Accepted Answer

When the price of good X falls, the consumer will have more purchasing power or income to spend on other things, which means that the income-effect will cause X purchases to increase. Hence, the correct answer is A.

The Price of Good X Falls