Question

) A price change would have the largest income effect on a A) magazine. B) tablet computer. C) piece of clothing. D) car.

Answer 1

d

Step-by-step explanation:

A change in price leads to two effects :

• The income effect
• The substitution effect

The income effect is the change in quantity demanded as a result of a change in real income which affects the consumes purchasing power.

A car constitutes a very large part of a consumers expenditure due to its cost. Thus, the income effect for a car would be the largest

The substitution effect is the change in demand as a result of change in the price of the good compared to the price of another substitute good.