Final Answer:
The change in consumption resulting from a change in real income is income effect. The correct option is b) Income effect.
Step-by-step explanation:
Income Effect: The statement describes the concept of the "change in consumption resulting from a change in real income." This is known as the income effect. When an individual's real income changes, it influences their purchasing power and, consequently, their consumption patterns.
The correct term related to the change in consumption due to a shift in real income is the Income effect. When the price of a good decreases, consumers effectively experience an increase in their real income. This is because they can now buy the same quantity of the good for less money, leaving them with more income to spend on other goods and services. Conversely, if the price of a good increases, consumers may reduce their consumption of that good and allocate their income elsewhere.
The income effect, as the term suggests, revolves around changes in the price of goods and their subsequent influence on consumers' real purchasing power or disposable income. The income effect operates based on the idea that changes in prices directly impact the affordability and, consequently, the purchasing decisions of consumers. This economic concept is crucial in understanding consumer behavior and demand elasticity. The correct option is b) Income effect.