ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Answer and Explanation: When the price of a product increases, a consumer’s real income decreases, causing the consumer to decrease the quantity of the product demanded. This is known as The Income Effect.

Detailed explanation-2: -The income effect If price rises, it effectively cuts disposable income, and there will be lower demand for the good because of this fall in disposable income.

Detailed explanation-3: -A fall in own price of the commodity leads to increase in real income of the consumer and a consquent increase in purchasing power of the consumer. Q. In case of goods, demand increases with decrease in income of the consumer.

Detailed explanation-4: -The income effect states that when the price of a good decreases, it is as if the buyer of the good’s income went up. The substitution effect states that when the price of a good decreases, consumers will substitute away from goods that are relatively more expensive to the cheaper good.