Learn Before
The Assumption of a Non-Negative Income Effect
In economic models, it is generally assumed that the income effect for most goods is either positive or zero, but not negative. This assumption is based on the reasoning that if an individual's income increases, they would not choose to have less of something they value.
0
1
Tags
Science
Economy
CORE Econ
Social Science
Empirical Science
Economics
Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
Ch.3 Doing the best you can: Scarcity, wellbeing, and working hours - The Economy 2.0 Microeconomics @ CORE Econ
Related
The Income Effect of a Wage Increase on Free Time
Figures 3.11 and 3.12 as Illustrations of the Income Effect
The Assumption of a Non-Negative Income Effect
Graphical Representation of the Income Effect (Movement from A to C)
An Increase in Unearned Income Generally Leads to Higher Consumption and More Free Time
Impact of a Windfall on Consumer Behavior
Suppose the price of gasoline, a good that a commuter purchases regularly, falls significantly. As a result, the commuter finds they have more money left over after filling up their tank each week. They use this extra money to start buying a premium coffee on their way to work, a luxury they previously avoided. Which statement best explains the commuter's decision to buy the coffee?
Isolating the Purchasing Power Effect
An employee knows there is a consistent, but random, chance they will be caught if they decide not to put in effort during any given pay period. To decide whether the risk is worth it, they need to weigh the benefit of avoiding effort against the potential cost of being fired. According to the standard economic model for this situation, how should the employee approach calculating the total potential benefit of shirking?
The income effect refers to the change in the quantity of a good a person chooses to buy that results from that good becoming relatively cheaper or more expensive than other goods.
A consumer's favorite brand of coffee goes on sale, reducing its price by 50%. The consumer observes that they now have more money left in their weekly grocery budget. They use this extra money to buy more fresh fruit, a completely unrelated product. Which of the following statements best dissects the consumer's decision to buy more fruit?
Analyzing Consumer Response to a Subsidy
The price of concert tickets, a good that Sarah frequently purchases, decreases significantly. In response, Sarah not only attends more concerts but also starts buying more expensive merchandise at the concerts, something she rarely did before. Which part of Sarah's new behavior is explained exclusively by the change in her purchasing power?
A government program provides a significant, unconditional monthly cash payment to all its citizens. An economist studying the program's impact observes that, on average, recipients decrease their purchases of generic canned soup but increase their purchases of fresh, high-quality cuts of meat. Which statement provides the best evaluation of this change in consumer behavior?
An individual receives a significant salary increase. Following this raise, they begin to travel more frequently for leisure, even though the prices for flights, hotels, and other forms of entertainment have not changed. Which statement provides the most accurate economic explanation for this change in behavior?
Learn After
A consumer's income increases. Following this change, they are observed to increase their weekly purchases of fresh salmon but decrease their weekly purchases of canned tuna. According to the standard economic assumption that, for most goods, a person will choose to consume more (or at least not less) as their purchasing power grows, which statement provides the best analysis of this consumer's choices?
Analyzing Consumer Spending Changes
According to the standard economic assumption regarding how consumption changes with purchasing power, a model that shows a consumer buying less of a specific good after a significant salary increase is inherently flawed because it violates a fundamental principle of consumer choice.
Evaluating a Core Assumption in Consumer Choice
Interpreting Consumer Behavior
Rationale for a Core Economic Assumption
An economist is studying how consumer spending on four different items changes in response to a significant, across-the-board increase in household income in a city. Match each observed outcome to the economic principle it illustrates regarding the relationship between income and demand.
In consumer theory, it is generally assumed that an increase in a person's purchasing power will not lead them to buy less of a valued good. When, contrary to this standard assumption, an individual's consumption of a specific item decreases as their income grows, the income effect for that item is described as being ____.
A recent college graduate gets a high-paying job and immediately stops buying generic-brand instant noodles, which they had consumed frequently as a student. Despite common examples like this, why is it a standard and useful assumption in many economic models that a person will choose to consume more, or at least not less, of a good as their income increases?
Evaluating a Public Policy Model