-Consider the change in the price of a book depicted in the above figure. The original budget line is BC. The new budget line is BD. As a result of this price change, the income effect can be represented by a movement from
A) point E to point F.
B) point G to point A.
C) point G to point F.
D) point A to point F.

Question

-Consider the change in the price of a book depicted in the above figure. The original budget line is BC. The new budget line is BD. As a result of this price change, the income effect can be represented by a movement from
A) point E to point F. 
B) point G to point A. 
C) point G to point F. 
D) point A to point F.

Quizplus · Accepted Answer

The income effect is the change in consumption of a good due to a change in real income. In this case, the price of the book has decreased, which means that the consumer can now afford to buy more books with the same amount of money. This is represented by a movement from point E to point F, where the consumer is consuming more books and less of the other good.

-Consider the Change in the Price of a Book Depicted