Maneesh decides to move to a new apartment that is smaller because his rent recently doubled. This is an example of the _____ effect.
A) income
B) utility
C) substitution
D) optimization

Question

Quizplus · Accepted Answer

The income effect occurs when changes in the price level affect consumer demand due to a change in consumers' income. In this case, the doubling of rent effectively reduces Maneesh's disposable income, prompting him to move to a smaller, presumably less expensive, apartment to adjust to his new budget constraints.

Maneesh Decides to Move to a New Apartment That Is