What is the effect of an increase in income on demand for goods?

An increase in income typically leads to a rise in demand for goods because consumers have greater purchasing power. When individuals earn more, they are able to allocate additional funds toward purchasing both essential and non-essential items. This shift in income can enhance overall consumption, as people feel more financially secure and are willing to spend on a wider variety of goods.

In microeconomics, this concept is often related to normal goods, where demand rises as income increases. As consumers have more disposable income, they can afford to buy more goods and services, which leads to an overall increase in demand in the economy. This principle forms the basis of the consumption function in economic theory, illustrating how increases in income correspond with increases in consumption.

The other options suggest scenarios that don't fully reflect the general behavior of demand in relation to income changes. Some might imply that demand could decrease or remain stable, which is not what typically occurs with rising incomes. Others may limit the increase in demand to luxury goods only, which ignores the fact that demand for a wide range of goods, including necessities, tends to rise as income grows.