CFA Practice Question

There are 539 practice questions for this study session.

CFA Practice Question

When the price of one of the products that you buy increases, your purchasing power decreases. Thus you are likely to buy less of all normal goods. This is known as the ______.

A. demand effect
B. substitution effect
C. income effect
Correct Answer: C

An increase in price reduces your real income, and thus you will tend to buy less of all normal goods. This is the income effect.

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