Question

The income effect of an increase in the price of salmon A. refers to the effect on a​ consumer's purchasing power which causes the consumer to buy less​ salmon, holding all other factors constant. B. is the change in the demand for salmon when income increases. C. is the change in the demand for other types of​ fish, say​ trout, that results from a decrease in purchasing power. D. refers to relative price effect-salmon is more expensive compared to other types of fish-which causes the consumer to buy less salmon.

Answer 1

The correct answer is option A.

Step-by-step explanation:

The income effect refers to the change in the quantity demanded of a commodity due to change in the price level because, consumer's purchasing power changes as well.

When the price level increases, the real income of the consumer will fall. As a result, the consumer will demand less.

The income effect can be both direct and indirect.