When the price of gasoline increases, the amount of money available to spend on everything else (including gasoline) falls. This effect is known as the _____ effect.

Question

Quizplus · Accepted Answer

The income effect occurs because an increase in the price of gasoline reduces the real purchasing power of consumers' income, meaning they have less money available to spend on all goods and services, including gasoline itself.

When the Price of Gasoline Increases, the Amount of Money