You can spend $5 for lunch and you would like to have two double cheeseburgers. When you get to the restaurant, you find out the price for double cheeseburger has increased from $2.50 to $2.99. You decide to have just one double cheeseburger for lunch. This is best described as a(n):
A)substitution effect.
B)income effect.
C)buyer's reservation price effect.
D)seller's reservation price effect.

Question

Quizplus · Accepted Answer

The income effect describes how a change in the price of a good affects consumer purchasing power and consumption choices. Here, the price increase reduces the consumer's effective purchasing power, leading them to buy fewer cheeseburgers.

You Can Spend $5 for Lunch and You Would Like