When the price of a good rises,the resulting change in quantity demanded due solely to the decline in your income's purchasing power is called the
A) Giffen-good phenomenon.
B) law of demand.
C) substitution effect.
D) income effect.

Question

Quizplus · Accepted Answer

The change in quantity demanded due solely to the decline in purchasing power of income caused by a price increase is known as the income effect. This effect is a result of consumers' inability to afford the same quantity of the good at the new higher price with their reduced purchasing power. Therefore, they will reduce their quantity demanded, and this change is called the income effect.

When the Price of a Good Rises,the Resulting Change in Quantity