The Income Effect of a Price Change Is

question 46

Multiple Choice

The income effect of a price change is:

• A) always consistent with the Law of Demand.
• B) never consistent with the Law of Demand.
• C) consistent with the Law of Demand only for normal goods.
• D) consistent with the Law of Demand only for inferior goods.

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Definitions:

Edgeworth Box

A diagram used in economics to show the distribution of resources and to find the optimal allocation for two individuals.

Contract Curve

In economics, it refers to the locus of optimal points of allocation of resources between two parties under the constraints of their respective utility functions.

Pareto Optimal

A state of allocation of resources in which it is impossible to make any one individual better off without making at least one individual worse off.

Initial Endowment

The initial quantity of goods, services, assets, or resources that an individual, institution, or economy possesses.