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    Question

    Income effect states that as price of a good falls,

    demand rises since there is rise in
    A Money income Correct Answer Incorrect Answer
    B Real income Correct Answer Incorrect Answer
    C Relative price of other goods Correct Answer Incorrect Answer
    D Marginal utility Correct Answer Incorrect Answer

    Solution

    Due to fall in price, people are left with additional money (unspent which we were spending on the same commodity earlier) so effectively our income increases in real terms.

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