A decrease in the price of a good causes
A) the utility of the good to decrease.
B) the marginal utility of the good to decrease.
C) purchasing power of a person's income to increase.
D) the nominal wealth of a person to increase.

Question

Quizplus · Accepted Answer

When the price of a good decreases, a person's purchasing power increases because they can now buy more of the good with the same amount of income. This is because the price effect outweighs the income effect, meaning that the decrease in price has a larger impact on the buying power than any change in income. The utility or marginal utility of the good may or may not change depending on personal preferences and consumption patterns. The nominal wealth of a person does not necessarily increase as a result of a decrease in the price of a good.

A Decrease in the Price of a Good Causes