Income Effect

Description of Income Effect. Explanation.

Definition Income Effect. Description.

The Income Effect is an economic term that refers to the phenomena that people are inclined to buy more of a product if its price falls, because their real purchasing power has risen, so they have more funds to spend on everything, including the product.

In other words: it is the portion of the effect of a price change of product A on quantity demanded of product A that reflects the change in real income.

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End of description Income Effect. An explanation.