-In the above figure, if the budget line shifts from RT to RS, the income effect is illustrated by the move from
A) a to c.
B) a to b.
C) T to S.
D) b to c.

Question

-In the above figure, if the budget line shifts from RT to RS, the income effect is illustrated by the move from
A) a to c. 
B) a to b. 
C) T to S. 
D) b to c.

Quizplus · Accepted Answer

The income effect is the change in consumption resulting from a change in real income, holding prices constant. The move from b to c represents this effect as it shows the change in consumption due to the shift in the budget line from RT to RS.

-In the Above Figure, If the Budget Line Shifts from RT