What is the income effect?

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

B a graphic representation of a demand schedule

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

D the change in consumption resulting from a change in real income

Question

Social Studies

Reina White

22 September, 19:06

What is the income effect?

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

B a graphic representation of a demand schedule

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

D the change in consumption resulting from a change in real income

+3

Answers (2)

Know the Answer?

Lucia Drake · Answer 1

D. the change in consumption resulting from a change in real income.

Max Taylor · Answer 2

The income effect is D. change in consumption resulting in changes in the real income.

Explanation:

The change in income affect the consumer's purchasing power. It is described as the change in the demand of goods and services due consumer's change of income. Income change it is influenced by factors such as inflation, currency fluctuation, change of salary and change of the actual price.

The influence of actual price may increase the consumer's purchasing power since the decrease in price means there is more money left to be spent on other goods. This is the case when there is income free-up. One the other hand, the effect of salary increase prompts the consumer to make different spending choice. For example, salary increase may afford one a luxurious vacation, bigger or better car.