The Real-Income Effect

question 19

Multiple Choice

The real-income effect

• A) occurs when utility declines as consumption increases.
• B) is the additional satisfaction derived from consuming one more unit of a good or service.
• C) is the combination of goods and services that maximizes utility for a given income.
• D) occurs when a consumer buys more of a good as a result of a relative price change.
• E) occurs when there is a change in purchasing power as a result of a change in the price of a good.

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Definitions:

Consumer Surplus

The difference between the total amount consumers are willing and able to pay for a good or service and the total amount they actually pay.

Price Elasticity

An indicator of the sensitivity of demand for a product to variations in its price.

Quantity Demanded

The total amount of a good or service that consumers are willing and able to purchase at a specific price.

Own Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in the price of that same good, reflecting consumers' sensitivity to price changes.