Question

When the price of fuel approached $4/gallon before and during the recession, and college students could buy fewer pizzas because they had to spend more on gas, this is a good example of
A.the highly elastic demand for gasoline. .
B.the substitution effect.
C.the income effect
D.all of the other answers

Answer 1

Answer:

Option C The income Effect

Explanation:

Student has inelastic demand for gasoline as the increase in the price of gas does not change the consumption of gas instead it decreases the consumption of pizza as the consumer has less relative income so spend less on the pizza and sped more on the gasoline.