The income effect refers to the change in the quantity of a good demanded by consumers due to a change in their real income, with prices of goods held constant. This effect can lead to an increase or decrease in consumption depending on whether the good is a normal or inferior good.

Income Effect

income effect

quantity of a good demanded

real income

prices of goods

Increase in consumption

decrease in consumption

Normal good

inferior good

Exploring Income Effects on Consumer Demand

The Role of Income Levels in Shaping Demand

Understanding Demand and Supply

Concept of Marginal Propensity to Consume

Factors Influencing Wage Elasticity

Relevant Degrees

Your Lessons