alleryStart learning →The income effect describes a higher price as reducing, in effect, the:
ATotal supply of goods
BNumber of competitors
CQuality of the product
DBuying power of income
Answer & Solution
Correct answer: D. Buying power of income
1. A price rise makes the same income go less far.
2. The income effect is that a higher price has a particular consequence.
3. In effect, the buying power of income has been reduced.
4. That happens even though actual income has not changed.
_Source: OpenStax Principles of Microeconomics for AP Courses 2e (CC BY 4.0), Ch 6 'Consumer Choices'_
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