This article explores the impact of changes in demand on normal and inferior goods. Normal goods are commodities that a consumer purchases more of when their income increases and less of when their income decreases. The demand for these goods positively corresponds with a rise in income. On the other hand, inferior goods are commodities whose demand decreases with an increase in income, resulting in a negative relationship between income and demand.
What is Demand Curve?
The demand curve is a graphical representation of the relationship between the price of a good and the quantity that consumers are willing and able to purchase. The demand curve can shift to the right or to the left depending on various factors, including changes in consumer income.
Normal Goods
- Normal goods are those commodities whose demand increases with an increase in consumer income.
- For example, if a consumer’s income rises, they may buy more luxury goods such as high-end designer clothing, jewelry, or high-end electronics.
Inferior Goods
- Inferior goods are those commodities whose demand decreases with an increase in consumer income.
- For example, if a consumer’s income rises, they may switch from low-end goods such as generic food products to higher-quality brands.
The Effect of Income on the Demand Curve of Normal Goods
- A change in consumer income will affect the demand for normal goods.
- Increase in Income: If consumer income increases, their demand for normal goods will increase, leading to a rightward shift in the demand curve.
- Decrease in Income: If consumer income decreases, their demand for normal goods will decrease, leading to a leftward shift in the demand curve.
The Effect of Income on the Demand Curve of Inferior Goods
- A change in consumer income will also affect the demand for inferior goods.
- Increase in Income: If consumer income increases, their demand for inferior goods will decrease, leading to a leftward shift in the demand curve.
- Decrease in Income: If consumer income decreases, their demand for inferior goods will increase, leading to a rightward shift in the demand curve.
Other Factors Affecting Demand Curve Shift
- Changes in consumer income are not the only factor that can cause a shift in the demand curve.
- Other factors that can cause a rightward shift in the demand curve include an increase in the price of substitute goods, a decrease in the price of complementary goods, an increase in population, a change in consumer tastes, and an expectation of future price increases.
- Other factors that can cause a leftward shift in the demand curve include a decrease in the price of substitute goods, an increase in the price of complementary goods, a decrease in population, a change in consumer tastes, and an expectation of future price decreases.
Conclusion
Consumer income is a key factor that affects the demand for normal and inferior goods and, in turn, the demand curve. Understanding the relationship between income and demand curves is crucial for businesses and policymakers as it provides insight into consumer behavior and market trends.