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Questions
What happens to the demand of a good when consumer's income changes? Explain
Explain the effect of change in income of a consumer on demand of a good.
Explain the effects of change in income on demand for a good.
Solution
A change in the consumer’s income has corresponding changes in the demand for different types of goods in the market. The effects of change in income on demand for different types of goods are as follows:
Normal goods are goods which have a positive relationship between income and quantity demanded. Assume that other things remaining constant, an increase in the consumer’s income will lead to an increase in the quantity demanded and a decrease in the consumer’s income will lead to a decrease in the quantity demanded.
Inferior goods are goods which have a negative relationship between income and quantity demanded. Assume that other things remaining constant, an increase in the consumer’s income will lead to a decrease in the quantity demanded and a decrease in the consumer’s income will lead to an increase in the quantity demanded.
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