Difference between revisions of "Income Effect"
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MountainDew (talk | contribs) (grammar. Somebody who is familiar with economics should check out the truthfulness of the previous edit.) |
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| − | The Income Effect is the effect that occurs when the price of a [[good]] you buy decreases, such that the money you save actually increases your income. For example, if you drink a gallon of milk each week and the price of that gallon decreases by 25 cents, then you have 25 cents extra to spend on something else. It is as though your income went up by 25 cents. However, as deflationary cycles are rare, the savings | + | The Income Effect is the effect that occurs when the price of a [[good]] you buy decreases, such that the money you save actually increases your income. For example, if you drink a gallon of milk each week and the price of that gallon decreases by 25 cents, then you have 25 cents extra to spend on something else. It is as though your income went up by 25 cents. However, as deflationary cycles are rare, the savings are generally offset by a price increase in another item; thus any savings or increases in income are illusory. |
[[Category:Economics]] | [[Category:Economics]] | ||
Revision as of 19:27, March 11, 2007
The Income Effect is the effect that occurs when the price of a good you buy decreases, such that the money you save actually increases your income. For example, if you drink a gallon of milk each week and the price of that gallon decreases by 25 cents, then you have 25 cents extra to spend on something else. It is as though your income went up by 25 cents. However, as deflationary cycles are rare, the savings are generally offset by a price increase in another item; thus any savings or increases in income are illusory.