Question

Rodi owns Hallman's auto repair service. He has observed over the years that customers keep their high-mileage cars longer when the economy is doing poorly, creating demand for his maintenance and repair service. Rodi has observed the impact of ________ on demand for his service.

A. the target return effect
B. cross-price elasticity
C. the price inelasticity ratio
D. break-even points
E. the income effect

Answer 1

the income effect.

Step-by-step explanation:

The income effect describes a change in demand of goods which is caused by a change in the income. Income effect changes the quantity of good and services purchased by the customers.

There is a reduction in the quantity of goods demanded by customers when their income reduces and an increase in the quantity demanded when they experience an increase in their income.

Rodi the owner of Hallman's auto repair service has observed that customers keep their high-mileage cars longer when the economy is not doing well, thereby creating demand for his maintenance and repair, this is as a result of a decrease in their amount of income.

Answer 2

E. the income effect

Step-by-step explanation:

Based on the scenario being described within the question it can be said that Rodi has observed the impact of the income effect on demand for his service. This effect describes the change in demand for a specific product or service that has been caused by the change in the consumer's purchasing power due to changes in that same customer's current income.