Income changes and Demand

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Income changes and Demand

An increase in income does not always and invariably lead to an increase in demand for all the goods. There are a few exceptions as well.

This is because, higher income people would buy more of superior goods and use it in place of the inferior goods that they were consuming earlier. This shift of consumption from inferior to superior goods would reduce the demand for inferior goods at higher income levels.

demand for inferior good

Thus in the case of inferior goods, demand curve is downward sloping. When income level goes up from Y0 to Y1, demand for X decreases from OM0 to OM1.

demand curve when income rises

That increase in income shifts down the demand curve from D0 to D1 and demand for X decreases.


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