Answer to Question #163782 in Microeconomics for Ohemaa Afriyie

Question

 Explain how economists measure how demand for a good changes when income changes and with the help of a diagram, show why some goods are classified as inferior goods.

Answer 1

The consumers decision to consume particular goods is affected by their income level. For normal goods, the demand rises with increase in income due to increase in purchase parities and affordability. The elasticity of demand for normal good therefore increase with increase in demand and economist have express a direct relation between the two. However, the relationship between income and inferior goods are inverse such that as income increase, the demand for inferior goods declines. The more the income, the consumers want to consume more quality products and thus they will shift their consumption out of inferior goods as show in the graph below.

As shown above, when income increase from $750 to $1000 weakly, the demand decline from 200 units to 150 units. The demand curve for inferior good slops downwards with increase in income.