When the price of a given product declines, consumers' spendable income rises because it takes less income to purchase the same quantity. This is called the _____ effect.
A) net export
B) income
C) substitution
D) interest

Question

Quizplus · Accepted Answer

The income effect is the change in consumption patterns resulting from a change in purchasing power. As the price of a product declines, consumers can purchase the same quantity for less money, resulting in an increase in their spendable income.

When the Price of a Given Product Declines, Consumers' Spendable