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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 explains changes in buying power due to price adjustments for normal goods.


Explanation:

The income effect is the movement from point C to B, indicating a reduction in buying power due to price changes.

Consumption of both goods typically falls with the income effect, assuming they are normal goods.

Understanding the income effect is crucial in analyzing consumer behavior and demand.


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