In case of inferior goods, a rise in income of the buyers causes a fall in equilibrium price of the commodity. Comment.

Open in App

Solution

Yes. The income effect for an 'inferior good' is negative. It implies that for an increase in income of its buyers, the demand for the good falls. Diagrammatically, demand curve, D, as shown in Fig. shifts leftward, i.e., from $D$ to $D_{1}$ . The new equilibrium is struck at point $E_{1}$ . The equilibrium price decreases from $O P$ to ${O P}_{1}$ .

Suggest Corrections

Similar questions

Explain the effect of an increase in the income of buyers of a normal commodity on its equilibrium price.

Q. Increase in the income of the buyers (in case of an inferior good) will cause________________.

Q. How will an increase in the income of the buyer of an inferior good affect its equilibrium price and equilibrium quantity? Explain with the help of a diagram.

Explain, with the help of diagrams, the effect of the following changes on the demand of a commodity:

(i) An unfavourable change in taste of the buyer for the commodity.

(ii) A fall in the income of its buyer, if the commodity is inferior.

How are the equilibrium price and the equilibrium quantity of a normal commodity affected by an increase in the income of its buyers? Explain with the help of a diagram.

Join BYJU'S Learning Program