Principles of Microeconomics / Unit 5 MIC 0413 short lesson, about 20 seconds
The Income Effect
Captions available
The idea
A higher price also cuts the buying power of a fixed income: the consumer is poorer in real terms. The quantity change from that lost purchasing power is the income effect.
In practice
After a rent rise a tenant cuts back on many things.
Where people slip
The income effect needs no change in income: money income is fixed; real income fell because prices rose.
Your place on the trail
Every lesson rests on earlier ones and opens later ones. Tap any to jump.
Something wrong in this lesson? Flag it