If a normal good becomes more expensive while consumer income remains unchanged, the consumer's real purchasing power generally:
Correct answer: B. Decreases because the consumer can buy fewer goods
- A. Increases because the good earns more revenue
- B. Decreases because the consumer can buy fewer goods
- C. Remains fixed because nominal income is unchanged
- D. Increases because the substitution effect disappears
Explanation
A higher price reduces the quantity of goods that a fixed income can purchase, so real purchasing power falls. Unchanged nominal income does not mean unchanged real income.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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