Income Effect

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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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