Answer to Question #182895 in Microeconomics for Ishaq Mubarak

Question

Explain how the income effect influences food purchases and provide some examples of the income effect that might occur when the price of food rises, and other things remain the same

Answer 1

Food is a normal good so a rise in the price, which leads to decrease in people’s real income, decreases the quantity of food demanded. In the US, restaurants suffer as the negative income effect from a higher price of food leads people to cut back their trips to restaurants. In poor countries, people literally eat less when the price of food rises and in extremely poor countries starvation increases.