Question

Suppose you have $30 to spend on tacos each week. When the price of tacos increases from $2.00 to $3.00, the purchasing power falls from 15 tacos per week to 10 tacos per week. This decrease in the quantity of tacos demanded illustrates the ___________ effect.

Answer 1

This decrease in the quantity of tacos demanded illustrates the income effect.

What is the income effect?

The income effect looks at how a change in price affects real disposable income. When the price of tacos increase, real disposable income decreases. As a result, consumers can afford to buy less tacos since the consumer's purchasing power has decreased, holding money income constant.

To learn more about the income effect, please check: https://brainly.com/question/7664444