Question

If prices rise but income stays the same, what is the effect on the quantity demanded?

a. quantity demanded increases.
b. fewer goods are bought.
c. more goods are bought.
d. demand stays the same.

Answer 1

b. fewer goods are bought.

Step-by-step explanation:

If prices rise but wages remain constant this means that the real income of the worker has declined, ie he or she has lost purchasing power and may be able to buy a smaller amount of goods with his or her wage. Thus, the demand for goods and services tends to be lower.

Answer 2

The correct answer to this question is letter "b. fewer goods are bought." If prices rise but income stays the same, the effect on the quantity demanded is that fewer goods are bought. Since the increase in price cannot be accommodated by the same amount of income.