Question

Because the cost of a taxi ride increased, Martina decided to start packing a lunch instead of ordering out from a nearby restaurant. Which economic principle does this demonstrate?
the income effect
the deman curve
the demand schedule effect
the substitution effect

Answer 1

I believe it's the income effect but i am not 100% sure

Answer 2

The correct answer is: "the income effect".

If the price of one of the goods or services consumed by Martina increases, as it is the case of the taxi ride,and  if she keeps on purchasing it after the rise, her total income is going to relatively decrease. Her income is going to suffer a greater reduction than before when paying for the taxi ride. This is what is known in economic as income effect and, together with the substitution effect , they are the two effects that affect consumers when price variations occur.

The income effect causes a greater reduction in Martina's income and this is the reason why she has less money available for consuming other goods and she changes the restaurant lunch for a cheaper substitute.