Frances has so-called fruit budget-example of income effect

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Frances has a so-called fruit budget, which she uses to buy only apples and nectarines. Assume the price of apples increases. Which of the following is an example of the income effect?

1. Because the price of apples increases, Frances will choose to buy only nectarines and no apples.

2. The increase in the price of apples makes apples relatively more expensive than nectarines, so Frances will buy fewer apples and more nectarines.

3. The increase in the price of apples decreases Frances's real income, which forces Frances to buy fewer fruits in general.

Reference no: EM13999285

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