The income effect of a price change is:
A) always consistent with the Law of Demand.
B) never consistent with the Law of Demand.
C) consistent with the Law of Demand only for normal goods.
D) consistent with the Law of Demand only for inferior goods.

Question

Quizplus · Accepted Answer

The income effect states that when the price of a product decreases, consumers can purchase more of it with their income, which leads to an increase in the quantity demanded of normal goods. This is consistent with the Law of Demand, which states that as the price of a good increases, the quantity demanded decreases, and as the price of a good decreases, the quantity demanded increases. The income effect for inferior goods is the opposite, as consumers will purchase less of the good as their income increases due to it being considered of lower quality.

The Income Effect of a Price Change Is