The income effect of an increase in the price of peaches is
A) the change in the quantity demanded of peaches that results from the price increase making peaches more expensive than other fruit, holding constant the effect of the price change on consumer purchasing power.
B) the change in the demand for peaches as a result of the change in the price of peaches, holding all other factors constant.
C) the change in the quantity demanded of other fruit that results from the impact of the price change on purchasing power, holding all other factors constant.
D) the change in the quantity demanded of peaches that results from the effect of the change in price on consumer purchasing power, holding all other factors constant.

Question

Quizplus · Accepted Answer

The income effect of a price change measures how the change in price affects the purchasing power of consumers. In this case, an increase in the price of peaches would reduce the purchasing power of consumers, making them less able to afford the same quantity of peaches as before. This would result in a decrease in the quantity demanded of peaches. Therefore, the correct choice is D, which refers to the change in quantity demanded of peaches resulting from the impact of the change in price on consumer purchasing power, holding all other factors constant.

The Income Effect of an Increase in the Price of Peaches