BusinessDictionary (reference below) defines income effect as a change in the demand of a good or service, induced by a change in the consumers’ discretionary income.
BusinessDictionary goes on to say:
“Any increase or decrease in price correspondingly decreases or increases consumers’ discretionary income which, in turn, causes a lower or higher demand for the same or some other good or service. For example, if a consumer spends one-half of his or her income on bread alone, a fifty-percent decrease in the price of bread will increase the free money available to him or her by the same amount which he or she can spend in buying more bread or something else.”
Atlas topic, subject, and course
BusinessDictionary.com, income effect, at http://www.businessdictionary.com/definition/income-effect.html, accessed 18 May 2016.
Page created by: Ian Clark, last modified 18 May 2016.