CA Foundation Exam > CA Foundation Questions > An increase in consumer income will increase ...
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An increase in consumer income will increase demand for a _______ but decrease demand for a _________
- a)substitute good, inferior good
- b)normal good, inferior good
- c)inferior good, normal good
- d)normal good, complementary good
Correct answer is option 'B'. Can you explain this answer?
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An increase in consumer income will increase demand for a _______ but ...
Increase in Consumer Income and its Effect on Demand
Normal Goods vs Inferior Goods
Normal goods are those goods that have a positive income elasticity of demand. This means that as consumer income increases, demand for normal goods also increases. Examples of normal goods include luxury goods like high-end clothing, jewelry, and cars.
Inferior goods, on the other hand, have a negative income elasticity of demand. This means that as consumer income increases, demand for inferior goods decreases. Examples of inferior goods include low-quality food items and used cars.
Substitute Goods vs Complementary Goods
Substitute goods are those goods that can be used as a replacement for each other. For example, if the price of tea increases, demand for coffee, a substitute good, may increase.
Complementary goods are those goods that are used together. For example, if the price of gasoline increases, demand for cars, a complementary good, may decrease.
Effect of Increase in Consumer Income
An increase in consumer income can have different effects on demand depending on the type of good.
- Normal goods: An increase in consumer income will lead to an increase in demand for normal goods. This is because people have more money to spend and can afford to buy more luxury items.
- Inferior goods: An increase in consumer income will lead to a decrease in demand for inferior goods. This is because people can afford to buy better quality items and don't have to settle for low-quality goods.
In conclusion, an increase in consumer income will increase demand for a normal good but decrease demand for an inferior good. It has no effect on the demand for substitute or complementary goods.
Normal Goods vs Inferior Goods
Normal goods are those goods that have a positive income elasticity of demand. This means that as consumer income increases, demand for normal goods also increases. Examples of normal goods include luxury goods like high-end clothing, jewelry, and cars.
Inferior goods, on the other hand, have a negative income elasticity of demand. This means that as consumer income increases, demand for inferior goods decreases. Examples of inferior goods include low-quality food items and used cars.
Substitute Goods vs Complementary Goods
Substitute goods are those goods that can be used as a replacement for each other. For example, if the price of tea increases, demand for coffee, a substitute good, may increase.
Complementary goods are those goods that are used together. For example, if the price of gasoline increases, demand for cars, a complementary good, may decrease.
Effect of Increase in Consumer Income
An increase in consumer income can have different effects on demand depending on the type of good.
- Normal goods: An increase in consumer income will lead to an increase in demand for normal goods. This is because people have more money to spend and can afford to buy more luxury items.
- Inferior goods: An increase in consumer income will lead to a decrease in demand for inferior goods. This is because people can afford to buy better quality items and don't have to settle for low-quality goods.
In conclusion, an increase in consumer income will increase demand for a normal good but decrease demand for an inferior good. It has no effect on the demand for substitute or complementary goods.
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An increase in consumer income will increase demand for a _______ but ...
When consumer's income increases then they shift from inferior good(low quality good) to normal good(better qualty good)
for example
if a consumer income is @ 20,000 per month then he buy rs 40 per kg rice if his income increase 20,000 to 25,000 then he buy rs 45 per kg rice
there is positive relation between income and demand
when income rises deamnd of normal goods rises
similarly
if income rises demand of inferior goods fall there is negative relarion
for example if income rise then conumer will not consume low quality goods
for example
if a consumer income is @ 20,000 per month then he buy rs 40 per kg rice if his income increase 20,000 to 25,000 then he buy rs 45 per kg rice
there is positive relation between income and demand
when income rises deamnd of normal goods rises
similarly
if income rises demand of inferior goods fall there is negative relarion
for example if income rise then conumer will not consume low quality goods
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An increase in consumer income will increase demand for a _______ but decrease demand for a _________a)substitute good, inferior goodb)normal good, inferior goodc)inferior good, normal goodd)normal good, complementary goodCorrect answer is option 'B'. Can you explain this answer?
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