Sales of national brands of orange juice tend to increase when the economy is doing well, while sales of generic orange juice increase when the economy is not doing well. This is an example of how ____________ affects demand for products.
A) the substitution effect
B) the price inelasticity coefficient
C) the income effect
D) the target return effect
E) cross-price elasticity

Question

Quizplus · Accepted Answer

This is an example of the income effect, where consumers' purchasing power is affected by changes in the economy. When the economy is doing well, consumers have more disposable income and tend to purchase higher-priced national brands. Conversely, when the economy is not doing well, consumers may have less disposable income and opt for lower-priced generic brands instead.

Sales of National Brands of Orange Juice Tend to Increase