question_answer

What happens to the demand of a good when consumer's income changes? Explain.

Answer:

'The demand for goods is affected by change in the income of the buyer. The effect of change in income on the demand depends on the Quality of the good.

Demand for normal goods makes a positive relationship with buyer's income. As income increases, the demand for normal goods also increases and vice-versa.

Demand for inferior goods (such as coarse cereals) shares a negative relationship with consumer's income. As the income increases, the demand for inferior goods falls and vice-versa.

Giffen goods are those goods which are highly inferior. Similar to the inferior goods, demand for Giffen goods also shares a negative relationship with the income.