Adrian purchases wipes and household cleanser in equal quantities because that maximizes his utility. On his original budget constraint, Adrian buys 5 wipes and 5 bottles of Monkey Grease for a total utility of 25 Utils. All of his $10 income, Y, is spent at this point as can be seen in equation (1).
If the price of Monkey Grease decreases to 50 cents, then Monk feels wealthier even though he is not. Monk would only need $7.50 to buy the same amount of cleanser as before. The amount he would buy because he feels wealthier is the income effect.
Only economists could theorize that in order to add more to your income you’d have to subtract.
If the price of Monkey Grease decreases to 50 cents, then Monk feels wealthier even though he is not. Monk would only need $7.50 to buy the same amount of cleanser as before. The amount he would buy because he feels wealthier is the income effect.
Only economists could theorize that in order to add more to your income you’d have to subtract.
On the contrary, it takes an economist to realize that ultimately, it's not about the money, it's about the stuff money will buy.
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