Gail operates on a tight budget. She buys store or generic brands to save money. Recently, Gail was given a substantial pay raise. Now, she has altered her shopping patterns and regularly buys more expensive, name-brand goods. This is an example of
A)the substitution effect.
B)the price inelasticity coefficient.
C)the income effect.
D)the target return effect.
E)cross-price elasticity.

Question

Quizplus · Accepted Answer

The change in Gail's shopping patterns due to her increased income is an example of the income effect. This effect refers to the change in consumer behavior that can be attributed to a change in income level. In this case, Gail's increased income has allowed her to buy more expensive brands.

Gail Operates on a Tight Budget