Question

In each of the following situations, list what will happen to the equilibrium price and the equilibrium quantity for a particular product, which is an inferior good.

1.      The population decreases and productivity increases
2.     The income increases and the price of inputs increase
3.      The number of firms in the market decreases and income decreases
4.     Consumer preference decreases and the price of a complement increases
5.      The price of a substitute in consumption increases and the price of a substitute in production increases

Answer 1

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An inferior good is that good which has a negative relationship with income and its quantity demanded means when the consumer's income increases the quantity demanded of the inferior good decreases.

Situations-

a) When the population decreases, the per capita income of the consumers increases, and the quantity demanded of the product falls. And when productivity increases the supply of the product increases and this leads to a fall in the price of the product.

b) The income of the consumer increases the quantity demanded of the product decreases. and When the price of inputs increases, it increases the cost of the production of the good as a result the price of the product increases.

c) when the no. of firms in the market decreases the quantity supply by the firm falls and this leads to a rise in the price of the good. and when the income decreases the quantity demanded of the product increases.

d) when the consumer preference of the good decreases, the demand for the product decreases, as a result, the price of the good falls. And when the price of complement increases this leads to a decrease in the quantity demanded of the complement and as a result, the equilibrium quantity of the product also falls.

e) When the price of a substitute in consumption increases this leads to a fall in the quantity demanded of the substitute good as a result the quantity demanded of the product will rise. And when the price of a substitute in production increases the producer will increase the supply of the substitute and reduces the supply of the product. As the supply of the product falls the equilibrium price the good increases