Answer to Question #171187 in Finance for Ammad Ul hassan

Question

If come of increase by 25%, how this increase in income will affect purchases of new cell phone and second hand bicycle?

Answer 1

An increase in income generally has an effect on the quantity demanded for certain goods.

From the above, if income increases by 25%, the demand for new cell phone (which may be a luxury or normal good to the consumer), and causing a decrease in the demand for second hand bicycle which the consumer sees as inferior. He moves to a more better object to spend his money on and reduces his consumption of less satisfying goods