Answer to Question #189434 in Microeconomics for fahmida

Question

Write an essay on 'Describe the impact of the rise in income on normal and inferior goods.'

Answer 1

Impact of Increase in Consumer's Income on the Demand for Normal and Inferior Good:

The quantities of a good a consumer is willing and able to buy at a particular time is dependent on a number of factors; among these factors are those that influence the consumer's purchasing power such as the level of income. As a result, goods are categorized into various groups on the basis of how they're affected by these factors i.e. normal goods and inferior goods. This essay outlines the meaning of normal goods viv a vis inferior goods and also how they are influenced by the consumer's income.

Normal goods are those goods whose demand increase with the increase in consumer's income. They include such goods as food, clothes and households items. They exhibit a positive correlation with consumer's income as illustrated by the graph below:

Inferior goods are defined as commodities whose demand decrease when consumer's income increases; such goods exhibit an inverse relationship with the consumer's income as illustrated in the graph below:

Conclusion; as a result of increase in consumer's income, the demand for normal goods will increase whilst the demand for inferior goods will decrease.