The income effect refers to the impact of a change in

Question

Quizplus · Accepted Answer

The income effect refers to the impact that a change in income has on the purchasing power of consumers, which in turn affects their demand for goods and services. When consumer income increases, they have more purchasing power, and the quantity demanded of normal goods (goods with a positive income elasticity) increases. When consumer income decreases, they have less purchasing power, and the quantity demanded of normal goods decreases. This is known as the "income effect." Therefore, the correct answer is C - the impact of a change in income on the price of a good.

The Income Effect Refers to the Impact of a Change