Which term represents the price aspect that reflects income sensitivity?

The concept of relative or real price is essential in understanding how prices impact consumers based on their income levels. Real prices account for inflation and effectively reflect the purchasing power of consumers, making it clear how much of their income they must allocate to purchase a specific good or service.

When prices are expressed in real terms, they show how much of an individual's income is necessary to afford them. This is particularly important in economics because it highlights the relationship between income and consumption choices. If the real price of a good increases significantly without a corresponding increase in income, consumers may reduce their demand for that item because it becomes less affordable. This sensitivity to income changes is critical for understanding consumer behavior.

In contrast, absolute prices are the nominal prices of goods without adjusting for factors like inflation or income changes. Market price reflects what a good is currently being sold for in the market but does not necessarily take into account how these prices relate to consumer income levels. Fixed prices do not respond to market changes or economic fluctuations and therefore do not reflect income sensitivity either.

Therefore, relative or real prices effectively illustrate how price changes influence consumer behavior based on income, making it the most relevant term in this context.