1. The income effect is a phenomenon observed through changes in purchasing power. 2. This ruled out income effects as an explanation for the endowment effect. 3. This explains the negative income effect on consumption. 4. Thrall introduces a consumption theory of land rent that includes income effects ; utility is broadly considered. 5. The substitution effect is reinforced through the income effect of lower real income ( Beattie-LaFrance ). 6. This means demand for these goods is perfectly inelastic; the income effect equals the substitution effect. 7. In addition, purchasing power from the price decline increases ability to buy ( the income effect ). 8. Any good where the income effect more than compensates for the substitution effect is a Giffen good. 9. Then the income effect from the rise in purchasing power from a price fall reinforces the substitution effect. 10. The pure income effect is shown as the movement from point A to point C in the next diagram.
