Income Effect Definition Economics Example

What is the income effect.

Income effect definition economics example. For a good as a result of a change in the income of a consumer. The income effect describes how changes in disposable income caused by wage rises falls changes in tax rates or prices going up or down influence the demand for one product or service or another good or service. It means that as the price increases demand decreases. Example of income effect.

Income effect is a change in income that affects the amount of goods or services individuals will demand or purchase. The income effect represents the change in an individual s or economy s income and shows how that change impacts the quantity demanded of a good or service. For example if a household spends one quarter of its income on rice a 40 decline in rice.