Question

question what best describes the income effect? select the correct answer below: the state in which the ratio of the prices of goods is equal to the ratio of the marginal utilities. the idea that consumers replace costly goods with more affordable goods as prices change. the idea that a higher price means the buying power of income has been reduced. a decision to consume a specific combination of goods to optimize satisfaction.

Explanation:

The income - effect refers to how a change in the price of a good affects the consumer's purchasing power of income. When the price of a good rises, it is as if the consumer's real income has decreased, reducing their ability to buy the same quantity of goods as before.

Answer:

The idea that a higher price means the buying power of income has been reduced.