INCOME EFFECT

Definition

• the change in an individual's or economy's income and how that change will impact the quantity demanded of a good or service.

Details

• The relationship between income and the quantity demanded is a positive one, as income increases, so does the quantity of goods and services demanded.

Example

• When an individual's income increases, other things remaining the same, that person will demand more goods and services; thus increasing their consumption.

Example 2

• If the price of meat increases, then the higher price may encourage consumers to switch to alternative food sources, such as buying vegetables.

Example 2 etc..

• However, the higher price of meat, means that after buying some meat, they will have lower income. Therefore, consumers will buy less meat because of this income effect.

Conclusion

• In the end your income will effect the way you live and what you purchase throughout your lifetime. If your income changes the amount of good or services you purchase changes.