Question

In: Economics

Suppose a family's income increases. would it's demand for all goods and services rise or would it rise for some goods and services and fall for others

Suppose a family's income increases. would it's demand for all goods and services rise or would it rise for some goods and services and fall for others

Solutions

Expert Solution

Answer :

"Rise for some goods and services and fall for others."

An increase in the family income will cause demand curve to shift rightward (Increase) only if the goods are normal goods. A rise in income (for a normal good) will increase demand because people will have more money to spend.

On the other hand, a decrease in demand for inferior goods results from a rise in income because inferior goods are usually cheaper substitutes purchased with lower incomes.

Note : The reverse will happen (Explanation above) if there is a decrease in the family income)


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