Consider the substitution and income effects of a 15% increase in the price of a good.Of the goods listed below,which is most likely to have the largest income effect?
A)salt
B)paperclips
C)socks
D)tennis balls
E)electricity

Question

Quizplus · Accepted Answer

Electricity is a necessity with a relatively larger share of household budgets compared to the other goods listed, so a price increase would have a more significant impact on consumers' real income and purchasing power.

Consider the Substitution and Income Effects of a 15% Increase