For a consumer,which of the following statements about the real-income effect is true?
A) It matters only when prices change enough to cause a measurable effect on the purchasing power of a consumer's income.
B) It can be observed for any price change.
C) It occurs when a consumer buys more of a good as a result of a relative price change.
D) It matters only when prices change enough to cause a consumer to purchase more of the good whose price changed.
E) The purchasing power of your income increases when the price of a good increases.

Question

Quizplus · Accepted Answer

The real-income effect occurs when a change in the price of a good affects the purchasing power of a consumer's income. However, this effect only matters when the price change is significant enough to cause a noticeable effect on the consumer's ability to purchase goods with their income. Therefore, statement A is true while B, C, and E are false. Statement D is also incorrect because the real-income effect can result in either an increase or decrease in demand for the good whose price has changed, depending on the type of good and the consumer's preferences.

For a Consumer,which of the Following Statements About the Real-Income