Answer to Question #153056 in Microeconomics for Hassan

Question

An increase in consumer incomes would result in:
a. a decrease in demand for bread
b. a decrease in demand for diamonds
c. a decrease in demand for low-quality cars
d. an increase in demand for inter-city bus travel (compared to flying or taking the train).

Answer 1

Solution:

An increase in consumer incomes would result in:

b. a decrease in demand for low-quality cars.

This is because low-quality cars are inferior goods. Consumers will ordinarily fancy low-quality cars when they earn less income since they are cheaper and affordable. As consumers' income increases, the demand for low-quality cars decreases, while the demand for high-quality cars that are expensive increases since the consumers have more extra funds to afford them.