The income effect of an increase in the price of salmon A. refers to the effect on a consumer's purchasing power which causes the consumer to buy less salmon, holding all other factors constant. B. is the change in the demand for salmon when income increases. C. is the change in the demand for other types of fish, say trout, that results from a decrease in purchasing power. D. refers to relative price effect-salmon is more expensive compared to other types of fish-which causes the consumer to buy less salmon.

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Business

Kelvin Copeland

30 June, 22:00

The income effect of an increase in the price of salmon A. refers to the effect on a consumer's purchasing power which causes the consumer to buy less salmon, holding all other factors constant. B. is the change in the demand for salmon when income increases. C. is the change in the demand for other types of fish, say trout, that results from a decrease in purchasing power. D. refers to relative price effect-salmon is more expensive compared to other types of fish-which causes the consumer to buy less salmon.

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Answers (1)

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Hallie Russell · Answer 1

The correct answer is option A.

Explanation:

The income effect refers to the change in the quantity demanded of a commodity due to change in the price level because, consumer's purchasing power changes as well.

When the price level increases, the real income of the consumer will fall. As a result, the consumer will demand less.

The income effect can be both direct and indirect.