The income effect shows that when the price of a good
A) decreases, income effectively rises and quantity demanded increases.
B) decreases, income effectively decreases and quantity demanded decreases.
C) decreases, people switch from more expensive goods.
D) increases, people switch to more expensive goods.

Question

Quizplus · Accepted Answer

The income effect explains that when the price of a good decreases, consumers feel as though their income has effectively increased because they can now buy more of the good (or other goods) with the same amount of money, leading to an increase in the quantity demanded of the lower-priced good.

The Income Effect Shows That When the Price of a Good