The real-income effect is likely to be greater when
A) the substitution effect is not very large.
B) the marginal utility of the last unit is high.
C) the marginal utility per dollar spent on the last unit is high.
D) the good is an expensive good.

Question

Quizplus · Accepted Answer

The real-income effect is more significant for expensive goods because a change in price or income has a larger impact on the consumer's overall purchasing power.

The Real-Income Effect Is Likely to Be Greater When