income effect

Definitions

Economics

  • noun the effect of a change of income on the amount of a good or service consumed. If the consumer’s income rises because the price of a product falls, the demand for the product may increase if the product is superior.

Health Economics

  • (written as Income Effect)
    The effect on the demand for a good or service that arises from the impact on real income of a change in its price, ceteris paribus. It may be positive or negative. For example, a fall in price means that the same rate of consumption can be maintained at a lower level of expen diture. This is equivalent to an increase in real income (one can now buy more of everything) and this will lead to a rise in demand for all income-elastic goods. If the good whose price has fallen is itself an income-elastic good, then there will be a further boost to its own demand deriving from this income effect.

Marketing

  • noun the effect that a change in a person’s income has on his or her spending
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