Answer to Question #324377 in Economics of Enterprise for Dave

Question

Normal vs inferior goods

Answer 1

1. Those goods whose demand rises with an increase in the consumer’s income is called normal goods. Those goods whose demand decreases with an increase in consumer’s income beyond a certain level is called inferior goods.
2. Income elasticity of demand for normal goods is positive but less than one. On the other hand, income elasticity is negative i.e. less than zero.
3. In the case of normal goods, there is a direct relationship between income changes and the demand curve. Conversely, there is an indirect relationship between income changes and demand curve, in inferior goods.
4. At falling prices, consumers prefer normal goods to inferior ones. Unlike, at rising prices, consumers would like to have inferior goods rather than normal goods.