Wealth effect

Pigro effect is a term used to refer to the economic phenomenon consisting in the increase of the expense and, therefore, of the production, which accompanies the fact of believing to be richer, whether or not wealth has been objectively increased. That is, the consumer, at equal price, demand more as more wealth has, moving the entire demand curve to the right.

The reversal of the wealth effect

The wealth effect implies changes in the quantity and composition of consumption. But, given the loss aversion, which biases every human decision, the reversal of the wealth effect causes a return back beyond the starting point.

Without considering the macroeconomic implications of the wealth effect and its reversal, the global real estate bubble and its puncture process can not be understood. Sources

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