Question

Higher income can be earned because of higher

Answer 1

Answer:

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Answer 2

Answer:

The income effect in microeconomics is the change in demand for a good or service caused by a change in a consumer's purchasing power resulting from a change in real income. This change can be the result of a rise in wages etc., or because existing income is freed up by a decrease or increase in the price of a good that money is being spent on.

Explanation:

The income effect is a part of consumer choice theory—which relates preferences to consumption expenditures and consumer demand curves—that expresses how changes in relative market prices and incomes impact consumption patterns for consumer goods and services. For normal economic goods, when real consumer income rises, consumers will demand a greater quantity of goods for purchase.  The income effect expresses the impact of changes in purchasing power on consumption, while the substitution effect describes how a change in relative prices can change the pattern of consumption of related goods that can substitute for one another.  The change in the quantity demanded resulting from a change in the price of a good can vary depending on the interaction of the income and substitution effects.