Snuggy1999
Answered

Which phrase describes the income effect?

Athe effect of demand and supply on income earned by producers
Bthe impact of price on consumers’ purchasing ability and decisions
Cthe increased income earned by suppliers because of high prices
Dthe impact of consumers’ income on the supply of a product

Verified Answer :

cassie012901

b the correct answer is b

pristina

Answer: b). the impact of price on consumers’ purchasing ability and decisions.

Explanation:

Effect of a change in the price of good can be decomposed into income effect and substitution effect. When the price of a good falls, the consumer has some extra money left after purchasing the original bundle of goods. So, with this extra money he can buy more of the goods he likes. This is called the income effect. So, we can say that the income effect studies the impact of a price change on consumers purchasing ability and decisions.

Related Questions