The income effect of a price increase causes a decrease in the quantity of a normal good demanded.

Name: The income effect of a price increase causes a decrease in the quantity of a normal good demanded.
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Question

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The income effect states that as the price of a good increases, the purchasing power of consumers decreases. This causes a decrease in the quantity of a normal good demanded as consumers have less income to spend on that good.

The Income Effect of a Price Increase Causes a Decrease