The income effects of a change in price are most important for goods that:
A)take up a substantial share of a consumer's spending.
B)are very inexpensive.
C)are imported.
D)are normal.

Question

Quizplus · Accepted Answer

When the price of a good changes, it will affect the consumer's purchasing power and therefore their ability to buy other goods as well. This income effect will be more significant for goods that take up a substantial share of the consumer's spending, as a change in the price of these goods will have a larger impact on their overall purchasing power. Goods that are very inexpensive or imported may also be affected by a change in price, but these factors alone do not make them more or less important for income effects. Additionally, the income effect will only apply to normal goods, as the demand for inferior goods will actually increase with a decrease in income (i.e. their price relative to other goods will become relatively cheaper).

The Income Effects of a Change in Price Are Most