Explain the cause of a rightward shift in demand curve when fall in th...
Causes of a rightward shift in demand curve of a commodity are as follows: . (i) Fall in income in case of inferior goods When income of the consumer decreases, he will increase the consumption of inferior goods, e.g. a person increases the consumption of dalda refined when his income falls.....
Explain the cause of a rightward shift in demand curve when fall in th...
Introduction:
A rightward shift in the demand curve occurs when there is an increase in the quantity demanded at each price level. One of the factors that can cause this shift is a fall in the income of the buyers. In this explanation, we will discuss in detail how a decrease in income leads to a rightward shift in the demand curve.
Effect of a fall in income on demand:
When the income of buyers decreases, it has a significant impact on their purchasing power. As a result, their ability to buy goods and services diminishes. This decrease in buying power leads to a change in their consumption patterns, which is reflected in the demand curve.
Demand curve shift:
A fall in the income of buyers causes a rightward shift in the demand curve due to the following reasons:
1. Normal goods:
- Normal goods are those for which demand increases as income rises.
- When income falls, the demand for normal goods decreases.
- This decrease in demand is reflected in a rightward shift of the demand curve.
- For example, if a person's income decreases, they may not be able to afford luxury items like expensive jewelry, leading to a decrease in demand for such goods.
2. Inferior goods:
- Inferior goods are those for which demand decreases as income rises.
- When income falls, the demand for inferior goods increases.
- This increase in demand is also reflected in a rightward shift of the demand curve.
- For example, if a person's income decreases, they may switch from buying branded products to cheaper alternatives, leading to an increase in demand for inferior goods.
3. Substitution effect:
- When income falls, buyers tend to substitute more expensive goods with cheaper alternatives.
- This substitution effect causes a rightward shift in the demand curve as the demand for cheaper substitutes increases.
- For example, if the income of consumers falls, they may switch from buying organic fruits to regular fruits, leading to an increase in the demand for regular fruits.
4. Aggregate demand:
- A fall in income of a large number of buyers in an economy can have an impact on aggregate demand.
- When aggregate demand decreases, it leads to a rightward shift in the demand curve for various goods and services.
- This shift is due to the overall decrease in purchasing power of the consumers in the economy.
Conclusion:
In conclusion, a fall in the income of buyers causes a rightward shift in the demand curve. This shift occurs due to the decrease in demand for normal goods, increase in demand for inferior goods, substitution effect, and the impact on aggregate demand. These factors collectively lead to a change in consumption patterns and a shift in the demand curve.
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