Income effect
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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.
