The Income Effect of an Increase in the Price of Backpacks

question 171

Multiple Choice

The income effect of an increase in the price of backpacks (a normal good) is a(n)

• A)decrease in the demand for backpacks
• B)decrease in the quantity demanded of backpacks
• C)increase in the demand for backpacks
• D)increase in the quantity demanded of backpacks
• E)new demand curve because everything else is no longer constant

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Definitions:

Giffen Good

A product that experiences an increase in demand as its price increases, contrary to the law of demand, typically because it is a staple whose cheaper substitutes are not as affordable.

Inferior Good

A type of good for which demand decreases as the income of the consumer increases, contrary to normal goods.

Normal Good

A good for which demand increases as the income of consumers increases and vice versa, all else being constant.

WARP

WARP, or the Weak Axiom of Revealed Preference, is an economic principle stating that if a consumer chooses one bundle of goods over another when both are available, then they will not choose the second bundle when the first one remains available.