ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The income effect, in microeconomics, is the resultant change in demand for a good or service caused by an increase or decrease in a consumer’s purchasing power or real income. As one’s income grows, the income effect predicts that people will begin to demand more (and vice-versa).

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: -Increase in Quantity Demanded The proportion that quantity demanded changes relative to a change in price is known as the elasticity of demand and is related to the slope of the demand curve.

Detailed explanation-4: -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.

Detailed explanation-5: -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.