Question 1: Think about the income and substitution effects of ... | Filo

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What is meant by the income effect of a fall in the prices of a commodity? Explain how income effect is responsible for the negative slope of the demand curve. - Economic Applications | Shaalaa.com

Consider the effects of an increase in two different types of income: permanent income and transitory income. In general, an increase in income will result in a lower corresponding increase in consumption. Changes in this type of income will have a comparatively multiplier effect. If the government wants to maximize the impact of a tax decrease on consumer spending, it should pass a permanent tax cut. issue a one-time tax rebate. pass a one-year tax cut. pass a two-year tax cut.