A rise in the price of gasoline,everything else remaining the same,________ the relative price of a restaurant meal and ________ real income in terms of restaurant meals.
A)increases;does not change
B)does not change;decreases
C)decreases;does not change
D)does not change;increases
E)decreases;decreases

Question

Quizplus · Accepted Answer

A rise in the price of gasoline increases the cost of transportation for both consumers and restaurants. Therefore, restaurants may increase the price of meals due to increased transportation costs. As a result, the relative price of a restaurant meal decreases because it costs relatively more compared to gasoline. However, real income in terms of restaurant meals does not change because real income is determined by the purchasing power of your money, and a rise in gasoline prices does not affect your overall purchasing power.

A Rise in the Price of Gasoline,everything Else Remaining the Same,________