Suppose you enjoy going to the movies and dining out. If the price of going to see a movie increases (and nothing else changes), you might go to fewer movies. A price change like this has two important effects.
Your entertainment budget won't buy you as much as
it used to, because movies cost more; therefore, it's as if your income was
reduced. This might cause you to go to fewer movies (we'll assume that movies
are a normal good for most people). This is called the income effect of a price change or just the income effect for short (but keep in mind, the only thing that changed was price).
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