Figure 21-12
-Refer to Figure 21-12. Suppose that a consumer is originally at point R. Then the price of good X decreases. Which of the following represents the income effect of the price decrease?
A)The movement from point R to point S
B)The movement from point R to point T
C)The movement from point T to point S
D)The movement from point T to point R

Question

Figure 21-12 
-Refer to Figure 21-12. Suppose that a consumer is originally at point R. Then the price of good X decreases. Which of the following represents the income effect of the price decrease?
A)The movement from point R to point S 
B)The movement from point R to point T 
C)The movement from point T to point S 
D)The movement from point T to point R

Quizplus · Accepted Answer

The income effect of a price decrease is shown by the movement from a higher indifference curve to a lower one, after adjusting for the change in purchasing power. Here, after adjusting for the price decrease (moving along the new budget line), the movement from T to S represents the consumer adjusting their consumption due to the increased real income or purchasing power, hence showing the income effect.

Figure 21-12 -Refer to Figure 21-12. Suppose That a Consumer Is Originally