Final answer:
Consumer buying behavior is influenced by one's buying power, predominantly determined by income. The income effect changes the effective buying power when the price of goods shifts, while the substitution effect motivates consumers to seek alternatives or consume more based on price changes.
Step-by-step explanation:
Consumer buying behavior is affected by the ability to buy, called one's buying power, which is largely determined by income. Income has a vital role in consumer behavior; the higher a consumer's income, the less elastic the price of goods they purchase becomes. Individuals with higher incomes are less impacted by price changes when making purchasing decisions, whereas those with lower incomes often need to consider price more carefully.
When the price of a good changes, this affects a consumer's buying power. The income effect refers to this change in the effective buying power of one's income, which is not an actual change in income but the alteration in the quantity of goods that can be bought with a fixed amount of income. This principle is complemented by the substitution effect, wherein consumers may opt for substitutes when prices increase, or conversely choose to consume more of a good when its price decreases, enhancing their buying power.