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Questions
Define income effect.
What is the income effect?
Definition
Short Answer
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Solution
The impact on income refers to a change in demand caused by a change in real income as a result of a change in commodity prices. A fall in the price of a commodity results in an increase in real income; i.e., the purchasing power of the given money income increases. A part of the increased real income may be used to buy more of this commodity.
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