The Income Effect in Economics: Definition & Example


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question 1 of 3

According to the income effect, how does an increase in income affect demand?

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1. Other than income, what factor can also contribute to the income effect?

2. When there is a decrease in income, how does this affect the consumption and demand of goods?

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About This Quiz & Worksheet

The income effect describes how changes in income affect the amounts of goods or services consumers will demand or purchase, and this quiz/worksheet combo will help you test your knowledge on how the income effect impacts the economy. The practice questions on the quiz will test you on the effect of an increase in income, the effect of a decrease in income, and other factors that contribute to the income effect.

Quiz & Worksheet Goals

In these assessments, you'll be tested on:

  • Increase in income's effect on demand
  • The effect of a decrease in income on demand
  • How consumers respond to falling prices
  • Your paycheck and the effect higher prices has on it

Skills Practiced

This quiz and worksheet will allow you to test your skills in the following areas:

  • Reading comprehension - ensure that you draw the most important information on the income effect in economics from the related lesson
  • Making connections - use your understanding of the concept of supply and demand to better understand how increasing and decreasing income affects the economy
  • Distinguishing differences - distinguish between the effects of an increase or decrease in income
  • Information recall - access the knowledge you've gained regarding the income effect in economics

Additional Learning

To learn more about the income effect, review the accompanying lesson on this topic called The Income Effect in Economics: Definition & Example. This lesson covers the following objectives:

  • Define the income effect
  • Discuss the relationship between income and price
  • Understand how increases and decreases in income and the price of goods affect consumer buying power