When a reduction in the price of a good allows a consumer to purchase more of all goods, this effect is called the a. elasticity effect. b. income effect. C. substitution effect. d. monetary effect.

Question

Business

Elena Kim

14 August, 11:49

When a reduction in the price of a good allows a consumer to purchase more of all goods, this effect is called the a. elasticity effect. b. income effect. C. substitution effect. d. monetary effect.

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Answers (2)

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Nigel Conrad · Answer 1

The correct option is B, income effect.

Explanation:

Income effect is when consumers are able to buy more of a product when the price of such product reduces, in other words, the consumer's real income increases.

Consumer real income is the basket of goods and services the disposable income of the consumer is capable of buying at prevailing market rates.

It is very important to note that disposable income is net wages and salaries received by the household after tax and other deductions such pension contribution have all been deducted from their gross wages and salaries.

Ellen Garrison · Answer 2

The correct answer is b. income effect.

Explanation:

The income effect describes how the change in the price of a good can change the quantity that consumers will demand of that good and related goods, based on how the price change affects their real income.