What is the term for the effect which a price change has on real income and therefore on the quantity demanded of a product?
A)Income effect.
B)Substitution effect.
C)Market demand.
D)Change in the quantity demanded.
E)Opportunity cost.

Question

Quizplus · Accepted Answer

The term for the effect which a price change has on real income and therefore on the quantity demanded of a product is called the Income effect. When the price of a good increases, the real income of the consumer decreases, causing them to reduce the quantity demanded due to lower purchasing power. Similarly, when the price of a good decreases, the real income of the consumer increases, causing them to increase the quantity demanded due to higher purchasing power.

What Is the Term for the Effect Which a Price