Asked by Vanessa Ramirez on Jul 25, 2024
Verified
For a renter,the income effect of an increase in apartment rents will:
A) have a greater impact than the income effect of an increase in the price of a chewing gum.
B) be almost negligible,because everything except price is assumed constant along a demand curve.
C) have less of an effect than the income effect of a decrease in the price of dairy products.
D) be almost negligible,because housing is a necessity.
E) have a greater impact than the positive substitution effect of this price change.
Income Effect
The change in an individual's or economy's income and how that change will affect the quantity demanded of a good or service.
Apartment Rents
The payment made periodically by a tenant to a landlord for the use and occupancy of an apartment.
Chewing Gum
Chewing gum is a type of flavored and chewable confectionery designed to be chewed without being swallowed.
- Distinguish between normal and inferior goods and realize how fluctuations in income alter their demand levels.
Verified Answer
VH
Valerie HuffmanJul 25, 2024
Final Answer :
A
Explanation :
When apartment rents increase, the renter's disposable income decreases which affects their ability to purchase other goods/services. This is the income effect, and it will have a greater impact on the renter's budget compared to the income effect of a small-priced item such as a chewing gum.
Learning Objectives
- Distinguish between normal and inferior goods and realize how fluctuations in income alter their demand levels.