Question

Natalie operates on a pretty tight budget. She is a price-conscious shopper and usually buys store or generic brands to save money. Recently, however, Natalie was given a pretty substantial raise. As such, she has altered her shopping patterns and now regularly buys more expensive, name-brand goods. This is an example of
a. the income effect.
b. horizontal price fixing.
c. the discounts are available to all customers.

Answer 1

Answer: The income effect

Explanation: The income effect refers to the effect on the purchasing power of the consumer when his or her income level changes.

In the given case, Natalie was price conscious  and used to buy lower priced goods with the objective of saving money. When her income rises she starts buying expensive goods as her purchasing power increases with increase in income.

Hence from the above we can conclude that the correct option is A.