ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Answer and Explanation: The answer is B. The income effect refers to a change in the quantity demanded of a good because of a change in the buyer’s real income. This is because the income effect is as a result of a change in the purchasing power for consumers.

Detailed explanation-2: -The income effect is a change in quantity demanded because of a change in price that makes consumers feel richer or poorer. A shift in relative prices may cause a substitution effect, in which consumers substitute an alternative less expensive product for one that has become more expensive.

Detailed explanation-3: -The income effect identifies the change in consumers’ demand for goods and services based on their incomes. In general, as one’s income rises, they will begin to demand more goods. Similarly, A decrease in income results in lower demand.

Detailed explanation-4: -The change in quantity demanded due to a change in the relative price of a product is called price elasticity of demand. Mathematically, it is calculated by taking a ratio of the percentage change in quantity demanded of a product to the percentage change in its price.

Detailed explanation-5: -If the price goes up, the quantity demanded goes down (but demand itself stays the same). If the price decreases, quantity demanded increases. This is the Law of Demand. On a graph, an inverse relationship is represented by a downward sloping line from left to right.