A change in price that is accompanied by a change in income sufficient to leave a consumer's well-being unchanged is called:
A) an uncompensated price change.
B) a compensated price change.
C) an income adjusted price change.
D) the income effect.

Question

Quizplus · Accepted Answer

A compensated price change measures the change in price and income needed to keep a consumer at the same level of well-being, also known as utility. It is sometimes referred to as the Hicksian approach, after economist John Hicks. The income effect is a part of the compensated price change, representing the change in quantity demanded resulting from the change in real income (purchasing power) after a change in price. Therefore, B is the best choice as it describes a change in price that is compensated by a change in income to maintain the same level of utility.

A Change in Price That Is Accompanied by a Change