If a consumer buys less gasoline because gas prices increased by 100 percent, even though all other prices have also increased by 100 percent, then
A)the consumer is paying too close attention to changes in relative prices.
B)wages and prices are too flexible.
C)the consumer has been fooled by money illusion.
D)inflation is not a problem in the economy.

Question

Quizplus · Accepted Answer

The consumer has been fooled by money illusion, meaning they are only considering the nominal increase in gasoline prices and not the fact that all prices have increased by the same percentage. This can happen when people focus on the nominal value of prices rather than their real value adjusted for inflation.

If a Consumer Buys Less Gasoline Because Gas Prices Increased