The income effect refers to:
A) changes in income because of changes in business investment.
B) changes in money or nominal income because of changes in wages.
C) a change in the quantity demanded of a good because of an implicit change in the buyer's income caused by a change in the price of a good or service.
D) a change in the quantity demanded of a good because of a change in the buyer's money income.

Question

Quizplus · Accepted Answer

The income effect describes how a change in the price of a good or service leads to a change in the quantity demanded, effectively altering the consumer's purchasing power as if their income had changed, without an actual change in nominal income.

The Income Effect Refers To