normal goods and inferior goods.

Discussion in 'CT7' started by verma.kunal13, Sep 20, 2012.

  1. verma.kunal13

    verma.kunal13 Member

    Hello everyone.

    I have a little doubt.

    As we know, with an increase in income, the demand for normal goods increase and with an increase in income, demand for inferior goods decrease.

    Now, I think this way, when income rises, that means if price increases for a normal good, the demand will not fall as the consumer is willing to pay higher price. On the other hand, with a rise in income, the demand for inferior good is not rising. But if the price of inferior good rises (income has already risen), demand for inferior good shall not rise. Inferior good remains inferior for the consumer. with higher income he/she can buy superior goods. Am I thinking right? I doubt if demand for inferior good rises, this makes no sense to me. Kindly help.

    Thanks in advance and good time ahead!
     
  2. Calum

    Calum Member

    I think the point here is the distinction between a movement of the whole demand curve and a move *along* the demand curve due to a change in price.
     
  3. verma.kunal13

    verma.kunal13 Member

    still dubious

    Dear Calum,

    Please elucidate a little more. add some explanation.

    Thanks
     
  4. Charlie

    Charlie Member

    I agree with Calum that you're not distinguishing between a movement along the demand curve and a shift of the demand curve itself.

    A rise in price will shift you along the demand curve (upwards to the left, so that quantity demanded decreases). This is true for both normal and inferior goods.

    A rise in income will shift the demand curve to the right for a normal good, so that demand increases (and to the left for an inferior good so that demand decreases).

    You seem to be talking about a simultaneous rise in income and price for an inferior good. A rise in income will decrease quantity, and a rise in price will also decrease quantity.

    Often in economics it makes sense to isolate the variable you're interested in and keep everything else constant. Otherwise it's impossible to work out what will happen. For example, what will happen to the quantity demanded of a normal good if both prices and incomes rise? Well, the increase in price will reduce quantity demanded, but the increase in income will increase demand (and so quantity demanded). So we can't tell - it depends on how much prices and incomes each rise by, and what the corresponding elasticities are. It's usually better to look at the impact of a change in price and a change in income separately :)

    I wouldn't talk about an inferior good remaining inferior - it either is inferior or it isn't! I also wouldn't talk about superior goods, as they're not in the course :)
     
  5. verma.kunal13

    verma.kunal13 Member

    Thank you Charlie

    Dear Charlie,

    thank you so much!

    I was talking about the simultaneous change in both income and price. But I have got it now.

    Thanks a zillion!

    Warm regards,
    Kunal Verma
     

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