Income Effect

Knowledge Center

Summary, forum, best practices, expert tips and information sources.


What is the Income Effect? Meaning.

The Income Effect is an economic term that refers to the change in demand for a good or service caused by a change in a buyer's purchasing power resulting from a change in real income.

This change in real income can be the result of:

  • A rise in wages etc.
  • Feeing up income due to a decrease in the price of a good or service that money is being spent on.

In other words, it is the phenomena that people are inclined to buy more (or less) of a product or service if its price falls, because their real purchasing power has risen, so they have more funds to spend on everything, including the product or service.

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

The income effect and substitution effect are related economic concepts in consumer choice theory. The income effect expresses the impact of changes on the purchasing power on consumption. The substitution effect describes how a change in relative prices can change the pattern of consumption of related goods that can substitute for one another.

For normal economic goods and services, when real consumer income rises, they will demand a greater quantity of the goods or service for purchase.

However for inferior economic goods and services, when real consumer income rises, they will demand a smaller quantity of the goods or service for purchase. Inferior goods or services are typically those that are viewed by buyers as lower quality, but 'can get the job done' when on a tight budget.

Special Interest Group


Income Effect Special Interest Group.

Special Interest Group (7 members)


New Topic

Forum about the Income Effect.

Start a new forum topic about the Income Effect
Exchanging your ideas stimulates your personal and professional development. And you can help other people! Please motivate your point of view. You can still edit your topic for 3 hours.


Best Practices

Sign up

The top-rated topics about the Income Effect. Here you will find the most valuable ideas and practical suggestions.

Expert Tips

Sign up

Advanced insights about the Income Effect. Here you will find professional advices by experts.

Information Sources

Sign up

Various sources of information regarding the Income Effect. Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops.

Research Links

Sign up

Automatically jump to further useful sources regarding the Income Effect.

News Videos Presentations Books More






Compare with: Substitution Effect  |  Marketing Mix

Special Interest Group

Are you interested in the Income Effect? Sign up for free

Notify your students

Copy this into your study materials:

and add a hyperlink to:

Link to this knowledge center

Copy this HTML code to your web site:


Return to Management Hub: Finance & Investing  |  Marketing

More on Management  |  Return to Management Dictionary


This ends our Income Effect summary and forum.

About 12manage | Advertising | Link to us / Cite us | Privacy | Suggestions | Terms of Service
2021 12manage - The Executive Fast Track. V15.8 - Last updated: 10-5-2021. All names of their owners.