<P> The income effect in economics can be defined as the change in consumption resulting from a change in real income . This income change can come from one of two sources : from external sources , or from income being freed up ( or soaked up ) by a decrease ( or increase ) in the price of a good that money is being spent on . The effect of the former type of change in available income is depicted by the income - consumption curve discussed in the remainder of this article , while the effect of the freeing - up of existing income by a price drop is discussed along with its companion effect , the substitution effect , in the article on the latter . </P>
<P> The income effect in economics can be defined as the change in consumption resulting from a change in real income . This income change can come from one of two sources : from external sources , or from income being freed up ( or soaked up ) by a decrease ( or increase ) in the price of a good that money is being spent on . The effect of the former type of change in available income is depicted by the income - consumption curve discussed in the remainder of this article , while the effect of the freeing - up of existing income by a price drop is discussed along with its companion effect , the substitution effect , in the article on the latter . </P>
a parallel shift in the budget line is caused by changes in the relative prices of the two goods
a parallel shift in the budget line is caused by changes in the relative prices of the two goods
income effect
income effect