What is income effect when it comes to labor economics?
In the context of economics, the income effect is the change in an individual’s or economy’s income and how that change will impact the quantity demanded of a good or service. The relationship between income and the quantity demanded is a positive one, as income increases, so does the quantity of goods and services demanded. For example, when an individual’s income increases, other things remaining the same, that person will demand more goods and services; thus increasing their consumption.
