When the Price of a Good Falls, the Income Effect

question 131

Multiple Choice

When the price of a good falls, the income effect for an inferior good implies that people will buy

• A) less of that good because they can afford to buy more of the things they previously bought.
• B) more of that good because the relative price of the good has risen.
• C) less of that good because the relative price of the good has fallen.
• D) more of that good because they can afford to buy more of the things they previously bought.

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Definitions:

Quarterly Savings

Savings accumulated over a quarter (three months), often as a result of budgeting or reducing expenses.

Rate Of Return

The return or downturn on an investment spanned over a fixed period, quantified as a percentage of the original investment's value.

Equipment Savings

Reductions in costs achieved through the efficient use, purchase, or maintenance of equipment.