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Select the correct answer.

Which phrase describes the income effect?

A. the effect of demand and supply on income earned by producers

B. the impact of price on consumers' purchasing ability and decisions

C. the increased income earned by suppliers because of high prices

D. the impact of consumers' income on the supply of a product



Answer :

GinnyAnswer

Final answer:

The income effect in economics pertains to consumer reactions to changes in buying power due to price alterations, affecting the quantities of goods that can be bought.


Explanation:

The income effect is the movement from point C to B, which shows how consumers react to changes in buying power when prices alter, impacting the quantities of goods that can be purchased.

Consumers may experience income effects differently based on the type of good, such as normal goods, inferior goods, complements, or substitutes, which influence demand curves and consumer choices.

Understanding the income effect is essential in economics to analyze consumer behavior, purchasing power, and the impact of price changes on the consumption of goods.


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CandleFly

Answer: B. The impact of price on consumers' purchasing ability and decisions

Explanation:

The income effect in simple terms is the change in demand for a good or service that is caused by a decrease in purchases by a consumer population. The more the income grows, the more higher the demand becomes for that product.

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