The income effect holds that a decrease in the price of a commodity is, in some respects, the same as an increase in income.

Question

Quizplus · Accepted Answer

The income effect suggests that when the price of a commodity decreases, consumers feel as though their purchasing power has increased, similar to an increase in income, because they can now buy more of the commodity or other goods with the same amount of money.

The Income Effect Holds That a Decrease in the Price