Question

When the price of a product decreases, the purchasing power of our income increases and thus permits consumers to purchase more of the product. This statement describes rev: 05_02_2018 Multiple Choice an inferior good. the rationing function of prices. the substitution effect. the income effect.

Answer 1

The statement describes the income effect.

What is the income effect?

When the price of a good or service changes, the income and substitution effect comes into play. The income effect looks at how a change in price impacts the real disposable income.

For example, if the price of a phone declines by half of its original price. The same income would be able to purchase two of the phones. This is the income effect.

To learn more about the income effect, please check: https://brainly.com/question/7664444