Question

Assume the price of Coca-Cola increases. As a result, your real income decreases and you decrease the quantity of Coca-Cola purchased each month. This is an example of the:

Answer 1

income effect

Step-by-step explanation:

Income effect measures the change in quantity demanded of a good as a result of a change in real income or purchasing power.

As a result of the rise in price of the drink, real income fell and this led to a fall in the quantity demanded of the drink. This is the income effect.