Which of the following best describes the income effect of a price increase?
A) The price of bacon increases, so Michelle buys more sausage.
B) The price of corn chips increases, so Michelle buys potato chips.
C) The tuition at the public university increases, so Michelle attends a community college.
D) Michelle's apartment rent increases, so she cancels her subscription to a monthly magazine.

Question

Quizplus · Accepted Answer

The income effect occurs when a price increase effectively reduces consumers' purchasing power, leading them to buy less of the good or other goods. In option D, the rent increase reduces Michelle's disposable income, causing her to cancel her magazine subscription.

Which of the Following Best Describes the Income Effect of a Price