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Income effect

Published on Nov 20, 2015

Gianni Carbone

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PRESENTATION OUTLINE

1.

Income effect

The change in consumption resulting from a change in real income
2.

Change in consumption

If income increases, consume more. If income decreases consume less.
3.

examples of the income effect

  • Rising prices effect the way we consume 
  • If my income is increased I would buy a new dodge dart
  • On the the other hand if my income is decreased I would buy used car
4.

How income effect, affects producer

  • Producer rises price if consumption is high
5.

How income effect, affects consumer

  • Producer increases prices when consumption is high
  • Limited budget of consumer 
  • Consumer consumes less in result of increased prices

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