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