Answer to Question #166460 in Macroeconomics for Anchal Mishra

Question

5. Assume that product A is a normal good and product B is an inferior

good. If the income of the consumer increases, graphically analyse its effect

on demand for good A and B.

Answer 1

If the income increases the quantity demand for product A will increase, causing a positive elasticity, while the quantity demand for product B will decrease hence a negative elasticity demand.

The graph below shows the effect on demand for good A and B