College Connect: The Income Effect

Posted By Spring Eselgroth

By Phil Joens

As I walked through the aisles at Walmart Express in Columbia, Mo., my stomach grumbled with hunger.

I graduated from the University of Missouri only a few weeks before, and I kept thinking about how I was poor, on a tight budget and how everything in the store look good.

Then a can of Chef Boyardee beef ravioli caught my eye. That day, it was on sale for just 75 cents, marked down from $1.50. I went to the store intending to buy a can of Campbell’s potato soup for about $2 for that night’s dinner.

As I imagined eating the beef ravioli, I thought it seemed less like food, and more like some cheap concoction of leftover cattle parts, a slurry of tomato sauce and nasty noodles.

“I’m desperate, but I’m not that desperate,” I said to myself as I grabbed the potato soup, paid and walked out. When you graduate and you start working your first Job after college you’ll notice a weird thing in your bank account. That thing is money.

Now I’m just working a temporary job through the middle of May before I start a paid internship and then after that who knows what I’ll be doing. But the fact remains that I’m making $400 a week right now. Sure, the pay is just $10 an hour, and after taxes are taken out I only make about $646 per paycheck. But when I think about it, that’s more than double what I was making each week when I was working and attending classes as a full-time student.

For many college grads, the first jobs pay a bit more. Journalists, on average, make $35,000 and those who have IT or business analysts, make $45,000, according to Simply Hired.

The income effect is a simple concept. My freshman economics textbook, written by economists Glenn Hubbard and Anthony Patrick O’Brien define the income effect as, “The change in the quality demanded of a good that results from the effect of a change in the good price on consumers purchasing power.”

In this case Hubbard and O’Brien referred to the income effect in terms of the effect that it has on a particular good, not consumers specifically. But did you catch the end of that definition? The key part of this definition is that a change in consumers purchasing power allows them to buy different goods.

When I was a student and I didn’t have any income, I probably would be willing to buy the can of Chef Boyardee ravioli. But now that I’ve graduated and I have income, the ravioli becomes an inferior good according to Hubbard and O’Brien.

–Phil Joens is a recent graduate of the University of Missouri School of Journalism.

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