Interactive Glossary

BROWSE:

Ratchet effect:

A description of the human response to changes in welfare; i.e., a positive response to improvement and a negative one to diminishment. Once a particular level of satisfaction is achieved, this establishes a new psychological 'floor' to downward pressures. The effect is illustrated when incomes drop but consumers are unwilling to change their consumption patterns because they are accustomed to particular lifestyle or standard of living. In the long run, consumers may be forced to adapt to the new circumstances.

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