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QUESTION

How does the income effect relate to the law of demand?

When price changes, the consumer has more/less money for the other goods.

_x0001_Income effect is the change in quantity demanded as the consumer moves from the substitution effect point on the original indifference curve to the new indifference curve. _x0001_ Depending on the type of good, it can work in the same direction or in the opposite direction to the price change.

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