INCOME EFFECT

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INCOME EFFECT

Our general observation of how consumers react to an increase in their incomes suggests that most income consumption curves are of the shape presented ill , i.e., slopping upwards to the right. This means that, as a rule, a rise in consumer’s income will make him buy more of each of any two goods he is consuming. This is the usual shape of the income consumption curve.

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sulfuric Goods. Those goods of which the quantity that the consumer would buy less, as his incomerises, are called inferior goods. Thus, in diagram 7.5 (a), good X and in diagram 7.5 (0), good Y ,U’C inferior goods. Inferior goods may, therefore, be defined as goods for which income effect is negative.

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INCOME EFFECT