The income effect explains why there is a direct relationship between the price of a product and the quantity of the product demanded.

Question

Quizplus · Accepted Answer

The income effect refers to the change in quantity demanded of a product due to a change in income, not a change in price. The relationship between price and quantity demanded is explained by the law of demand, which states that as the price of a product increases, the quantity demanded of that product decreases, all other things being equal.

The Income Effect Explains Why There Is a Direct Relationship