income effect

income effect

the change in CONSUMERS’ real INCOME resulting from a change in product PRICES. A fall in the price of a good normally results in more of it being demanded (see THEORY OF DEMAND). A part of this increase is due to the real income effect (i.e. income adjusted for changes in prices to reflect current purchasing power). If a consumer has a money income of, say, £10 and the price of good X is £1, he can buy 10 units of the product; if the price of good X now falls to 50 pence, he can buy the same 10 units for only £5. The consumer now has an ‘extra’ £5 to spend on buying more of good X and other goods. The income effect, together with the SUBSTITUTION EFFECT, provides an explanation of why DEMAND CURVES are usually downward sloping. See CONSUMER EQUILIBRIUM, REVEALED PREFERENCE, PRICE EFFECT.

See INCOME-ELASTICITY OF DEMAND.

References in periodicals archive ?
This is what economists call an "income effect." Now imagine that a carbon dividend is in place: you would receive a monthly payment of $187, more than offsetting the price increase, and leaving you feeling richer.
The latter was accused of contradicting himself when he rejected the idea of the income effect, while still considering backward-bending labor supply curves to be possible.
The positive income effect from the productivity shock in the first country will also act to raise the national income of other countries.
In the traditional labor-leisure tradeoff discussed in a labor economics class, the elimination of the Social Security's RET rotates the woman's budget line, causing both a substitution and income effect. The female's budget line rotates upward and she is better off because she can reach a higher indifference curve; but the elimination of the RET has an ambiguous effect on the optimal amount of hours she works.
Jhooro Mal Hindu, M.Phil scholar from the Department of Economics presented his M.Phil seminar on the topic 'Empirical Estimation of Income Effect on the Education Attainment' A Case Study of Government High School of Taluka Khairpur under the supervision of Prof.
This one-time goodwill impairment charge, a non-cash impairment of goodwill in the Autoliv Nissin Brake Systems (ANBS) joint venture (of which Autoliv owns 51%), will have a net income effect to Autoliv of approximately USD100m in Q4 2017.
A non-cash impairment of goodwill in the Autoliv Nissin Brake Systems joint venture, of which Autoliv owns 51%, with a net income effect to Autoliv of approximately $100M in Q4.
'Car sales, even when oil prices tripled, continued to grow in the last 10 years because there is also an income effect in addition to a price effect,' Chua noted.
The change from fair value accounting to ASU 2016-07 has a current-period income effect, be it favorable or unfavorable.
While lump-sum aid generates only an income effect, matching aid has been theorized and observed to exert both income and substitution effects.
I also identify an income effect benefit to the income tax as social insurance case in the presence of optimal private insurance.
They conclude that disability payments have a "clear, robust, and substantial income effect" on earnings among some beneficiaries who had relatively high earnings prior to the onset of disability.