Answer to Question #47111 in Microeconomics for Yoyo

Question

An increase in consumer incomes will lead to increases in the prices of all grocery store items. Please explain why this statement is true, false, or uncertain.

Answer 1

Consumer income (Y) is a key determinant of consumer demand (Qd). The relationship between income and demand can be both direct and inverse.
In the case of normal goods, income and demand are directly related, meaning that an increase in income will cause demand to rise and a decrease in income causes demand to fall. For example, luxuries like cars and computers are normal goods for most people.
In the case of inferior goods income and demand are inversely related, which means that an increase in income leads to a decrease in demand and a decrease in income leads to an increase in demand. For example, necessities like bread are often inferior goods.
It should be noted that ‘normal’ and ‘inferior’ are purely relative concepts. Any good or service could be an inferior one under certain circumstances. Even luxury goods can become inferior over time. Video players were once luxuries, but as incomes have risen consumers have switched to DVDs.
So, this statement may be true, but not in all cases.