CA Foundation Exam > CA Foundation Questions > With a fall in the price of a commodity:a)con...
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With a fall in the price of a commodity:
- a)consumer ’s real income increases
- b)consumer ’s real income decreases
- c)there is no change in the real income of the consumer
- d)none of the above
Correct answer is option 'A'. Can you explain this answer?
Most Upvoted Answer
With a fall in the price of a commodity:a)consumer s real income incre...
Explanation:
With a fall in the price of a commodity, the purchasing power of the consumer increases. This effect is called the income effect. The reason behind this is that if the price of a commodity falls, then the consumer can buy more of the same commodity or can divert the saved money to purchase other goods and services. This means the real income of the consumer increases as he can purchase more goods and services with the same amount of money.
Let's take an example:
Suppose the price of a shirt falls from $20 to $15. If a consumer has $60, then earlier he could buy only three shirts, but now he can buy four shirts with the same amount of money. This means the real income of the consumer has increased.
Therefore, the correct answer is option 'A'. With a fall in the price of a commodity, the real income of the consumer increases.
With a fall in the price of a commodity, the purchasing power of the consumer increases. This effect is called the income effect. The reason behind this is that if the price of a commodity falls, then the consumer can buy more of the same commodity or can divert the saved money to purchase other goods and services. This means the real income of the consumer increases as he can purchase more goods and services with the same amount of money.
Let's take an example:
Suppose the price of a shirt falls from $20 to $15. If a consumer has $60, then earlier he could buy only three shirts, but now he can buy four shirts with the same amount of money. This means the real income of the consumer has increased.
Therefore, the correct answer is option 'A'. With a fall in the price of a commodity, the real income of the consumer increases.
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With a fall in the price of a commodity:a)consumer s real income increasesb)consumer s real income decreasesc)there is no change in the real income of the consumerd)none of the aboveCorrect answer is option 'A'. Can you explain this answer? for CA Foundation 2025 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about With a fall in the price of a commodity:a)consumer s real income increasesb)consumer s real income decreasesc)there is no change in the real income of the consumerd)none of the aboveCorrect answer is option 'A'. Can you explain this answer? covers all topics & solutions for CA Foundation 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for With a fall in the price of a commodity:a)consumer s real income increasesb)consumer s real income decreasesc)there is no change in the real income of the consumerd)none of the aboveCorrect answer is option 'A'. Can you explain this answer?.
With a fall in the price of a commodity:a)consumer s real income increasesb)consumer s real income decreasesc)there is no change in the real income of the consumerd)none of the aboveCorrect answer is option 'A'. Can you explain this answer? for CA Foundation 2025 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about With a fall in the price of a commodity:a)consumer s real income increasesb)consumer s real income decreasesc)there is no change in the real income of the consumerd)none of the aboveCorrect answer is option 'A'. Can you explain this answer? covers all topics & solutions for CA Foundation 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for With a fall in the price of a commodity:a)consumer s real income increasesb)consumer s real income decreasesc)there is no change in the real income of the consumerd)none of the aboveCorrect answer is option 'A'. Can you explain this answer?.
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