Question

1. What is the difference between a good with a positive income elasticity and one with a negative income elasticity? How do they each affect the demand curve?

2. Assuming you could afford both, would you ever buy a product that gave you less marginal utility than a similar substitute product? Why or why not?

Answer 1

1) Price elasticity is the response of economic agents towards price change of that product or service through increase or decrease in demand.
Price Elasticity = Percentage change in quantity demanded/Percentage change in income

Income elasticity measures the response when there is a change in income and then how that affects the demand for goods or services. Income elasticity of demand varies from negative to positive and it has varied significance.
Positive income elasticity is associated with normal good but if the value is more than 1 then it indicates luxury good.
On the other hand, negative income elasticity indicates inferior good.

Demand for normal good will rise with the rise in income and it will more for luxury goods. While demand for inferior goods will fall with the rise in income.
People choose for more healthy protein rich food with the rise in income which is the case of a normal good.

2) People will choose to buy a product which gives them higher utility or marginal utility. If we look at the microeconomic theory which states that any rational economic agent tries to maximize his utility through comparing products, their marginal utility, and price. His concern is about utility through that product or service and the cost of acquiring it. As long as its marginal utility is higher than the cost, he will buy it.
Thus if any other substitute product is giving higher marginal utility then any rational economic actor will buy that product.