Assume that Tonya consumes only two products, pizza and potato chips, out of a given budget. If the price of pizza decreases, then Tonya's consumption of pizza will
A)decrease due to the income effect.
B)decrease due to the substitution effect.
C)increase due to the income effect.
D)increase due to the law of diminishing marginal utility.

Question

Quizplus · Accepted Answer

When the price of pizza decreases, Tonya can afford to buy more pizza with the same budget, which is the income effect. This effect makes her feel as if her purchasing power has increased, allowing her to consume more of the goods she prefers, including pizza.

Assume That Tonya Consumes Only Two Products, Pizza and Potato