Quinn has $100 a month to spend on two normal goods-bowling and eating out. It costs $10 to bowl for the night, and it costs $20 for Quinn to eat at a restaurant. Quinn currently consumes four nights of bowling and three meals at a restaurant each month. If the price of a night of bowling increases to $15, the income effect predicts that Quinn will:
A)increase her consumption of both bowling and eating out.
B)decrease her consumption of both bowling and eating out.
C)bowl more often and eat out less often.
D)bowl less often and eat out more often.

Question

Quizplus · Accepted Answer

The income effect suggests that when the price of a good (in this case, bowling) increases, the consumer's real income effectively decreases, making them less able to afford all goods, leading to a decrease in consumption of both normal goods.

Quinn Has $100 a Month to Spend on Two Normal