Question

What is the income effect?



the change in consumption resulting from a change in real income



the desire to own something and the ability to pay for it



a graphic representation of a demand schedule



when consumers react to an increase in a good’s price by consuming less of that good and more of other goods

Answer 1

The change in consumption resulting from a change in real income !
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Answer 2

What is the income effect?

The change in consumption resulting from a change in real income.

When a person is able to change their purchasing power due to a change in the income they are receiving, there is a change in consumption of an item. If someone starts to make more money, they have more ability to purchase a good or service they may not have been able to prior. The income effect can impact the economy negatively and positively depending on whether ot not the income goes up or down for a person.