Question

Why are the real income levels of Americans affected by rising prices?

The inverse relationship between price and quantity demanded appears in study after study, with people almost always stating that they would buy more of an item if its price went down, and less if the price went up.

Identify the economic concept referred to in the statement above.

Explain the reason for the name of the concept.​

Answer 1

"Real income" is nominal/actual income adjusted for inflation and rising prices. So ,while your actual income stays the same your "real" income/real buying power goes down because your same old paycheck has to cover higher prices.

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The economic concept referred to is the law of demand- if prices go down people will demand more of a good because they can afford to buy more of it.