Income effect
This is an old revision of this page, as edited by Philip J. Rayment (talk | contribs) at 09:37, October 13, 2008. It may differ significantly from current revision.
It has been suggested that [[::Income Effect|Income Effect]] be merged with this article or section. (Discuss)
The income effect is the increased demand for a good, when its price decreases, due to the consumer having more cash (more real income) from the price decrease. The consumer has more money to spend when the price of the good declines, and he uses some of that extra money to buy more of the good. This effect is larger for goods that consumers depend heavily upon, such as certain foods and gasoline.
The income effect is one reason why the demand curve slopes downward.