A change in the ability to purchase a good because its price has increased is most closely related to the:
A) output effect.
B) income effect.
C) nominal effect.
D) substitution effect.

Question

Quizplus · Accepted Answer

The change in the ability to purchase a good due to an increase in its price is known as the income effect. As the price of the good increases, the consumer's purchasing power decreases, and they are unable to afford the same quantity of the good as before. This effect is related to the consumer's income because it determines their ability to purchase goods and services. The other choices, output effect, nominal effect, and substitution effect, are not directly related to changes in price and income.

A Change in the Ability to Purchase a Good Because