The income effect of a price change refers to the change in the quantity demanded of a good that results from a change in purchasing power because of the price change.

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The income effect is one of the two effects of a price change (the other being the substitution effect), and it refers to the change in the quantity demanded that results from a change in real income due to the price change. When the price of a good decreases, for example, consumers can afford to purchase more of it with their existing income, which leads to an increase in quantity demanded. On the other hand, if the price of a good increases, consumers may not be able to afford as much of it, which leads to a decrease in quantity demanded.

The Income Effect of a Price Change Refers to the Change