question_answer

Explain the effects of change in income on demand for a good.

Answer:

Effects of change in income on demand for a good: Relationship between income and demand is direct in case of normal good but negative in case of inferior good.

(a) In case of normal good, an increase in income of the buyer will increase the demand at the same price because he can afford to buy more and shift the demand curve to the right but fall in the income will decrease the demand and shift the demand curve to the left.

(b) In case of an inferior good, an increase in income usually leads to decrease in demand at the same price and shift the demand curve to the left but decrease in income leads to increase in demand at the same price and shifts the demand curve to the right.