Difference between revisions of "Income effect"
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According to [[Principles of Economics by Timothy Taylor (3rd edition)]], | According to [[Principles of Economics by Timothy Taylor (3rd edition)]], | ||
:[[Income effect]]. A change in price affects the buying power of income, with a higher price meaning that the buying power of income has been reduced, so that there is usually (with normal goods) an incentive to buy less of both goods, and a lower price meaning that the buying power of income has been increased, so that there is usually an incentive to buy more of both goods; always happens simultaneously with a substitution effect. | :[[Income effect]]. A change in price affects the buying power of income, with a higher price meaning that the buying power of income has been reduced, so that there is usually (with normal goods) an incentive to buy less of both goods, and a lower price meaning that the buying power of income has been increased, so that there is usually an incentive to buy more of both goods; always happens simultaneously with a substitution effect. | ||
| + | According to [[Macroeconomics by Mankiw (7th edition)]], | ||
| + | :[[Income effect]]. The change in consumption of a good resulting from a movement to a higher or lower indifference curve, holding the relative price constant. (Cf. substitution effect.) | ||
[[Category: Economics]][[Category: Articles]] | [[Category: Economics]][[Category: Articles]] | ||
Latest revision as of 16:56, 2 July 2020
Income effect is a change in price affects the buying power of income, with a higher price meaning that the buying power of income has been reduced, so that there is usually (with normal goods) an incentive to buy less of both goods, and a lower price meaning that the buying power of income has been increased, so that there is usually an incentive to buy more of both goods; always happens simultaneously with a substitution effect.
Definition
According to Principles of Economics by Timothy Taylor (3rd edition),
- Income effect. A change in price affects the buying power of income, with a higher price meaning that the buying power of income has been reduced, so that there is usually (with normal goods) an incentive to buy less of both goods, and a lower price meaning that the buying power of income has been increased, so that there is usually an incentive to buy more of both goods; always happens simultaneously with a substitution effect.
According to Macroeconomics by Mankiw (7th edition),
- Income effect. The change in consumption of a good resulting from a movement to a higher or lower indifference curve, holding the relative price constant. (Cf. substitution effect.)
