The income effect measures how
A)the quantity of a good supplied changes in response to a change in income
B)the quantity of a good demanded changes in response to a change in the price of a good,with income constant
C)far the budget line shifts due to a change in income
D)the quantity of a good demanded changes in response to a change in purchasing power
E)income changes when prices change,holding quantities demanded constant

Question

Quizplus · Accepted Answer

The income effect measures the change in the quantity demanded of a good due to a change in purchasing power. In other words, as income increases or decreases, the demand for a good may also increase or decrease. Therefore, the correct choice is D.

The Income Effect Measures How