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Chapter 1: Q 8RQ. (page 9)

Does a "income effect" involve a change in income?

Short Answer

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The income effect is the change in the consumption of goods based on income.

Step by step solution

01

Step 1.

The income effect is the change in the consumption of goods based on income. This means consumers will generally spend more if they experience an increase in income, and they may spend less if their income drops. But the effect doesn't dictate what kind of goods consumers will buy. They may opt to purchase more expensive goods in lesser quantities or cheaper goods in higher quantities, depending on their circumstances and preferences.

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