Joe did not receive a raise this year, so his income remains the same as last year. Meanwhile, the cost of his favorite games has gone up. If Joe’s actions are based on the income effect, which of the following is most likely to happen?

a. Joe will devote a larger percentage of his income to games.
b. Joe will buy fewer games.
c. Joe will buy different games that cost less.
d. Joe will calculate the utility of playing games.


b. Joe will buy fewer games.

If Joe’s actions are based on income effect, he will buy fewer games. The income effect describes how a higher price means, in effect, the buying power of income has been reduced (even though actual income has not changed), which leads to buying less of the good (when the good is normal).

Economics

You might also like to view...

The most consistent force for economic growth and progress is

A. government regulation. B. economic competition. C. technology integration. D. the gross domestic product.

Economics

Some examples of standardized products include

a. furniture products, such as chairs and tables b. clothing products, such as shirts and jeans c. agricultural products, such as eggs and milk d. electronic products, such as DVD players and TVs

Economics

Which of the following is NOT a negative externality?

A. E-mail "spam" consisting of advertisements for goods and services B. Low-flying aircraft creating noise over an otherwise quiet neighborhood C. A household pet leaving waste on a public sidewalk D. A homeowner failing to remove trash from his yard, leaving it as an unsightly eyesore in the neighborhood

Economics

Any point inside the production possibilities curve indicates:

A. the presence of technological change. B. that resources are imperfectly substitutable among alternative uses. C. the presence of inflationary pressures. D. that more output could be produced with the available resources.

Economics