The Income Effect states that if a change in prices causes consumers to have lower real incomes, then consumers would demand a lesser quantity of goods than normal.
Explanation:
In microeconomics, it is understood as the income effect one of the effects caused by the variation in the price of a product on its demand.
The income effect corresponds to the variation in the quantity demanded of a good (or service) as a result of the modification of the purchasing power caused by a change in the price of the good in question. When the price of a good changes, the purchasing power changes. If the price of the good falls, the purchasing power increases as the consumer can consume more units of that good or other goods. If the price of a good increases, its purchasing power falls since now its income reaches it for less units of the good while it has less resources to buy the other goods
