When the Price of a Good Falls, the Income Effect

question 458

Multiple Choice

When the price of a good falls, the income effect for a normal good implies that people buy

• A) less of that good because the relative price of the good has fallen.
• B) more of that good because the relative price of the good has risen.
• C) less of that good because they cannot afford to buy all the things they previously bought.
• D) more of that good because they can afford to buy more of all the things they previously bought.

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Definitions:

Marginal Utility

The additional satisfaction or benefit a consumer gains from consuming one more unit of a good or service.

Expected Income

Expected income refers to the amount of money an individual or entity anticipates earning over a specific period, taking into account various factors like job stability, market conditions, and investments.

Safety Flaw

A defect or deficiency in a product or system that could pose a risk to health or safety.

Risk Preference

An individual's or entity's willingness to tolerate risk or uncertainty in investment or economic decisions.