If the price of prime rib falls,the income effect due to the price change will cause
A)an increase in the demand for prime rib.
B)an increase in the demand for flank steak,a substitute for prime rib.
C)an increase in the quantity demanded of prime rib.
D)an increase in the quantity supplied of prime rib.

Question

Quizplus · Accepted Answer

The income effect of a price change refers to the change in quantity demanded due to the change in purchasing power of consumers. When the price of prime rib falls, consumers' purchasing power increases, which would lead to an increase in the quantity demanded of prime rib (assuming no substitution effect). Therefore, the best choice is C, an increase in the quantity demanded of prime rib. A does not make sense because a decrease in price would not usually lead to an increase in demand. B is incorrect because the question did not indicate an increase in the price of flank steak. D is also incorrect because the quantity supplied would not increase due to a decrease in price.

If the Price of Prime Rib Falls,the Income Effect Due