What term is used to describe the impact of income changes on the demand for goods or services?

The term that describes the impact of income changes on the demand for goods or services is referred to as the Income Effect. This concept illustrates how an increase or decrease in a consumer's income will affect their purchasing power, thereby influencing the quantities of goods or services they are willing or able to buy.

When income rises, consumers generally have more money to spend, which can lead to an increase in demand for various goods and services. Conversely, when income falls, consumers may have to cut back on their purchases, resulting in decreased demand. The Income Effect is particularly significant for normal goods, where demand increases with income, but it can vary for inferior goods, where demand may decrease as income rises.

Understanding the Income Effect is crucial for analyzing consumer behavior and how different economic conditions can alter market demand patterns.