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Question

When the price of a commodity falls, the consumer will have greater purchasing power


A

Giffen effect

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B

Substitution effect

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C

Income effect

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D

Veblen effect

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Solution

The correct option is C

Income effect


As the price of a commodity falls, the consumer has to spend less on purchase of that commodity with money saved by them and hence, the consumer can buy more quantity of that commodity. This is called an income effect.


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