as the price of a good or service increases, consumers will purchase a lower quantity of that good or service due, in part, to the fact that consumers cannot afford that same quantity of a good or service at a higher price. this concept is known as the ____.

Question

income effect
substitution effect
ceteris paribus effect
inflation

Answer 1

This concept is known as the income effect. The income effect refers to the impact that a change in the price of a good or service has on the consumer's purchasing power, which affects the quantity demanded. As prices rise, the real purchasing power of consumers decreases, leading them to buy less of that good or service.