The income effect is the
A) change in demand that results from an attempt to substitute a good whose price has decreased for another good whose price remained constant after having nullified the implicit change in income
B) good for which demand decreases as the income of the consumer increases and the relative prices remain constant
C) impact of an income-induced change in demand caused by a change in price

Question

Quizplus · Accepted Answer

The income effect refers to the impact of a change in income on the quantity demanded of a good, caused by a change in price. As income changes, consumers may increase or decrease their demand for a good based on their new purchasing power. This effect is typically observed when the price of a good remains constant, and it results in a shift in the demand curve. Therefore, option C is the correct choice as it defines the income effect accurately. Option A refers to the substitution effect, and option B describes an inferior good.

The Income Effect Is the