Question

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.

Answer 1

Answer: The correct answer is "e. occurs when there is a change in purchasing power as a result of a change in the price of a good.".

Explanation: The real-income effect occurs when there is a change in purchasing power as a result of a change in the price of a good.

The income effect corresponds to the variation in the quantity demanded of a good (or service) as a result of the modification of the purchasing power of purchase caused by a change in the price of the good in question.