goods whose demand falls as consumer income increases
Inferior good


In economics, an inferior good is a good whose demand decreases when consumer income rises (or demand increases when consumer income decreases), unlike normal goods, for which the opposite is observed. Normal goods are those goods for which the demand rises as consumer income rises. This would be the opposite of a superior good, one that is often associated with wealth and the wealthy, whereas an inferior good is associated with lower socio-economic groups. Inferiority, in this sense, is an observable fact relating to affordability rather
6884968
Consumer choice


falls from formula_12 to formula_11 to keep the consumer at the same level of utility on formula_22: The substitution effect increases the amount demanded of good formula_16 from formula_25 to formula_26 in the diagram. In the example shown, the income effect of the fall in formula_27 partly offsets the substitution effect as the amount demanded of formula_16 in the absence of an offsetting income change ends up at formula_29 thus the income effect from the rise in purchasing power due to the price drop is that the quantity demanded of formula_16 goes from formula_26 to formula_32.
8096327
Income–consumption curve


I, then the demand for X would fall . In that case, X would be called an inferior good i.e. demand for good X decreases with a rise in income of the consumer. Thus, a rise in income of the consumer may lead his demand for a good to rise, fall or not change at all. It is important to note here that, the knowledge of preferences of the consumer is essential to predict whether a particular good is inferior or normal. In the figure 2 to the left, B1,
12177035
Demand


as in this example. If it is a substitute, the coefficient of its price would be positive. Income, Y, has a positive coefficient indicating that the good is a normal good. If the coefficient was negative the good in question would be an inferior good meaning that the demand for the good would fall as the consumer's income increased. Specifying values for the non price determinants, P = 4.00 and Y = 50, results in the demand equation Q = 325 - P - 30(4) +1.4(50) or Q
7554016
Consumer choice


will offset in some degree the substitution effect. If the income effect for an inferior good is sufficiently strong, the consumer will buy less of the good when it becomes less expensive, a Giffen good (commonly believed to be a rarity). The substitution effect, formula_15, is the change in the amount demanded for formula_16 when the price of good formula_16 falls from formula_18 to formula_19 (represented by the budget constraint shifting from BC1 to BC2 and thus increasing purchasing power) and, at the same time, the money income
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Normal good


In economics, a normal good is any good for which demand increases when income increases, i.e. with a positive income elasticity of demand. A good is normal when the income elasticity of demand is greater than or equal to zero. In mathematical terms, good "g" is normal if and only if: formula_1 In the above definition, "Q" represents the quantity of good "x" demanded and "Y" represents the income of the given consumer being modeled. Intuitively, a good is normal if a change
6884976
Aggregation problem


two characteristics of individual consumer preference theory—continuity and homogeneity. Aggregation introduces three additional non-price determinants of demand: Thus if the population of consumers increases, ceteris paribus the demand curve will shift out; if the proportion of consumers with a strong preference for a good increases, ceteris paribus the demand for that good will change. Finally, if the distribution of income changes in favor of consumers who prefer the good in question, the demand will shift out. It is important to remember that factors that affect individual demand
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Income–consumption curve


consumer. In contrast, it is to be noted from the figure, that the demand for X has fallen from X to X with an outward shift of the budget line from B1 to B2 (caused due to rise in the income of the consumer). This implies that, good X is an inferior good as the demand for X fell with an increase in the income of the consumer. The consumer maximizes his utility at points X and X and by joining these points, the income–consumption curve can be obtained
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Inferior good


Walmart and rent-to-own establishments vastly represent a large percentage of goods referred to as "inferior". Cheaper cars are examples of the inferior goods. Consumers will generally prefer cheaper cars when their income is constricted. As a consumer's income increases, the demand of the cheap cars will decrease, while demand of costly cars will increase, so cheap cars are inferior goods. Inter-city bus service is also an example of an inferior good. This form of transportation is cheaper than air or rail travel,
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Demand curve


important factors are the prices of related goods (both substitutes and complements), income, population, and expectations. However, demand is the willingness and ability of a consumer to purchase a good "under the prevailing circumstances"; so, any circumstance that affects the consumer's willingness or ability to buy the good or service in question can be a non-price determinant of demand. As an example, weather could be a factor in the demand for beer at a baseball game. When income increases, the demand curve
2240580
Income–consumption curve


, with a rise in the income of the consumer, the initial budget line B1 moves outward parallel to itself to B2 and the consumer now chooses X bundle to the initial bundle X. The figure shows that, the demand for X has risen from X to X with an outward shift of the budget line from B1 to B2 (caused due to rise in the income of the consumer). This essentially means that, good X is a normal good as the demand for X rose with an increase in the income of the
12177038
Consumer choice


the income increases. formula_10 is the change in the demand for good 1 when we change income from formula_11 to formula_12, holding the price of good 1 fixed at formula_13: formula_14 Every price change can be decomposed into an income effect and a substitution effect; the price effect is the sum of substitution and income effects. The substitution effect is the change in demands resulting from a price change that alters the slope of the budget constraint but leaves the consumer on the same indifference curve. In other words, it illustrates the consumer
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Neutral good


In economics, neutral goods may refer either to goods whose demand is independent of income, or those which have no change on the consumer's utility when consumed. Under the first definition, neutral goods have substitution effects but not income effects. Examples of this include prescription medicines such as insulin for diabetics. Although an individual's income may vary, their consumption of vital medicines will remain constant. The second definition says that a good is neutral if the consumer is ambivalent towards its consumption. That is, the consumption of that
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Luxury tax


a Veblen good, which is a type of good for which demand increases as price increases. Therefore, the effect of a luxury tax may be to increase demand for certain luxury goods. In general, however, since a luxury good has a high income elasticity of demand by definition, both the income effect and substitution effect will decrease demand sharply as the tax rises. Luxury tax is based on the concept of positional goods, which are scarce goods whose value arises as status symbols largely from their ranking against other positional goods
1719150
Income–consumption curve


held constant the income–consumption curve can be traced out as the set of optimal points. In the case illustrated with the help of Figure 1 both X and X are normal goods in which case, the demand for the good increases as money income rises. However, if the consumer has different preferences, he has the option to choose X or X on budget line B2. As the income of the consumer rises, and the consumer chooses X instead of X i.e. if the consumer's indifference curve is I and not
12177034
Income–consumption curve


. In figure 3, the income–consumption curve bends back on itself as with an increase income, the consumer demands more of X and less of X. The income–consumption curve in this case is negatively sloped and the income elasticity of demand will be negative. Also the price effect for X is positive, while it is negative for X. formula_1 is the change in the demand for good 1 when we change income from formula_2 to formula_3, holding the price of good 1 fixed at formula_4: formula_5 The figure on the
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Income elasticity of demand


for a given Marshallian demand function formula_3 with arguments income and a vector of prices of all goods, for arbitrarily small changes in price and quantity of a good is This can be rewritten in the form For discrete changes the elasticity is where subscripts 1 and 2 refer respectively to values before and after the change. Necessity goods have an income elasticity of demand between zero and one: expenditure on these goods increases with income, but not as fast as income does, so the proportion of expenditure on these goods falls as income rises
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Hicksian demand function


is a change in quantity demanded due to a price change that alters the slope of the budget constraint but leaves the consumer on the same indifference curve (i.e., at the same level of utility.) By this effect, the consumer is posited to substitute toward the good that becomes comparatively less expensive. If the good in question is a "normal good", then the income effect from the rise in purchasing power from a price fall reinforces the substitution effect. If the good is an "inferior good", then
19291066
Income–consumption curve


independent variables (especially prices and money incomes of the consumers) on the chosen values of the endogenous or dependent variables (the consumer's demands for the goods). When the income of the consumer rises with the prices held constant, the optimal bundle chosen by the consumer changes as the feasible set available to them changes. The income–consumption curve is the set of tangency points of indifference curves with the various budget constraint lines, with prices held constant, as income increases shifting the budget constraint out. The income effect
12177031
Economics


bundles as more or less preferred. The law of demand states that, in general, price and quantity demanded in a given market are inversely related. That is, the higher the price of a product, the less of it people would be prepared to buy (other things unchanged). As the price of a commodity falls, consumers move toward it from relatively more expensive goods (the substitution effect). In addition, purchasing power from the price decline increases ability to buy (the income effect). Other factors
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Foreign direct investment and the environment


, pollution emission and resource depletion has been increasing at alarming rates due to greater economic activity (such as the cement, transportation and paper industries). There is hope that as income growth increase, there would be a positive long run effect on the environment as consumer demand shifts towards relatively cleaner goods - this shift would cause pollution-intensive goods to fall, potentially reducing pollution emissions. India, as well as many developing countries, have been experiencing rapid economic development once adopting more liberal economic policies. There is potential for
18059523
Consumer choice


higher price; this is called the substitution effect. As the price of a good rises, consumers will substitute away from that good, choosing more of other alternatives. If no compensation for the price rise occurs, as is usual, then the decline in overall purchasing power due to the price rise leads, for most goods, to a further decline in the quantity demanded; this is called the income effect. In addition, as the wealth of the individual rises, demand for most products increases, shifting the demand curve
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Giffen good


good. But a Giffen good is so strongly an inferior good in the minds of consumers (being more in demand at lower incomes) that this contrary income effect more than offsets the substitution effect, and the net effect of the good's price rise is to increase demand for it. A Giffen good is considered to be the opposite of an ordinary good. Giffen goods are named after Scottish economist Sir Robert Giffen, to whom Alfred Marshall attributed this idea in his book "Principles of Economics", first published in 1890
1037029
Macroeconomics


lower price levels. The downward slope is the result of three effects: the Pigou or real balance effect, which states that as real prices fall, real wealth increases, resulting in higher consumer demand of goods; the Keynes or interest rate effect, which states that as prices fall, the demand for money decreases, causing interest rates to decline and borrowing for investment and consumption to increase; and the net export effect, which states that as prices rise, domestic goods become comparatively more expensive to foreign consumers, leading to
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Price elasticity of demand


PES), can be used to assess where the incidence (or "burden") of a per-unit tax is falling or to predict where it will fall if the tax is imposed. For example, when demand is "perfectly inelastic", by definition consumers have no alternative to purchasing the good or service if the price increases, so the quantity demanded would remain constant. Hence, suppliers can increase the price by the full amount of the tax, and the consumer would end up paying the entirety. In
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Ordinary good


An ordinary good is a microeconomic concept used in consumer theory. It is defined as a good which creates increased demand when the price for the good drops or conversely decreased demand if the price for the good increases, "ceteris paribus". It is the opposite of a Giffen good. Since the existence of Giffen goods outside the realm of economic theory is still contested, the pairing of Giffen goods with ordinary goods has gotten less traction in economics textbooks than the pairing normal good/inferior good used to distinguish responses to income
7026429
Relative price


change in any relative prices, so if consumers' nominal income and wealth also go up by 10% leaving real income and real wealth unchanged, then demand for each good or service will be unaffected. But if the price of a particular good goes up by, say, 2% while the prices of the other goods and services go down enough that the overall price level is unchanged, then the relative price of the particular good has increased while purchasing power has been unaffected, so the quantity of the good demanded will
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Income–consumption curve


is a phenomenon observed through changes in purchasing power. It reveals the change in quantity demanded brought by a change in real income. The figure 1 on the left shows the consumption patterns of the consumer of two goods X and X, the prices of which are "p" and "p" respectively. The initial bundle X, is the bundle which is chosen by the consumer on the budget line B. An increase in the money income of the consumer, with "p" and "p" constant, will shift
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Economics terminology that differs from common usage


, a rise in income causes a consumer to be willing to purchase more of a good than before contingent on each possible price, economists say that the income rise has caused the consumer's demand for the good to rise. In contrast, if a change in market conditions leads to a decline in the price of a good resulting in a consumer's being willing to buy more of it, economists say that the consumer's quantity demanded of the good has risen. A change in "quantity demanded" is represented by a
17438980
Necessity good


In economics, a necessity good or a necessary good is a type of normal good. Necessity goods are products and services that consumers will buy regardless of the changes in their income levels, therefore making these products less sensitive to income change. Examples include repetitive purchases of different durations such as haircuts, habits including tobacco, everday essentials such as electricity and water, and critical medicine such as insulin. As for any other normal good, an income rise will lead to a rise in demand, but the increase for a necessity
10365151
Consumer choice


The diagram below shows the demand curve for good Y as its price varies. Alternatively, if the price for good Y is fixed and the price for good X is varied, a demand curve for good X can be constructed. Another important item that can change is the money income of the consumer. The income effect is the phenomenon observed through changes in purchasing power. It reveals the change in quantity demanded brought by a change in real income. Graphically, as long as the prices remain constant, changing income will create
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Engel's law


Engel's law is an observation in economics stating that as income rises, the proportion of income spent on food falls, even if absolute expenditure on food rises. In other words, the income elasticity of demand of food is between 0 and 1. The law was named after the statistician Ernst Engel (1821–1896). Engel's law does not imply that food spending remains unchanged as income increases: It suggests that consumers increase their expenditures for food products in percentage terms less than their increases in income. One application of this
15797387
John Stuart Mill


working population. Wages can increase by an increase in the capital used in paying wages, or by decrease in the number of workers. If wages rise, supply of labour will rise. Competition among workers not only brings down wages, but also keeps some workers out of employment. This is based on Mill's notion that "demand for commodities is not demand for labourers". It means that income invested as advances of wages to labour creates employment, and not income spent on consumer goods. An increase in consumption causes
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Hicksian demand function


of proving the relationships described above. The Hicksian demand function is intimately related to the expenditure function. If the consumer's utility function formula_11 is locally nonsatiated and strictly convex, then formula_12 Downward sloping Marshallian demand curves show the effect of price changes on quantity demanded. As the price of a good rises, presumably the quantity of that good demanded will fall, holding wealth and other prices constant. However, this effect of price changes on quantities demanded is due to both the income effect and the substitution effect. The substitution effect
19291065
Giffen good


In economics and consumer theory, a Giffen good is a product that people consume more of as the price rises and vice versa—violating the basic law of demand in microeconomics. For any other sort of good, as the price of the good rises, the substitution effect makes consumers purchase less of it, and more of substitute goods; for most goods, the income effect (due to the effective decline in available income due to more being spent on existing units of this good) reinforces this decline in demand for the
1037028
Income


units of good y. So, formula_7 is the "relative" price of a unit of x as to the number of units given up in y. Second, if the price of x falls for a fixed formula_1 and fixed formula_10 then its relative price falls. The usual hypothesis, the law of demand, is that the quantity demanded of x would increase at the lower price. The analysis can be generalized to more than two goods. The theoretical generalization to more than one period is a multi-period wealth and income constraint
15159205
Mr Keynes and the "Classics"


Mathematical elegance would suggest that we ought to have "I"  and "i"  [i.e. "Y"  and "r" ] in all three equations. It is indeed more than suspicious that a "demand"  function should be independent of income, but Hicks misdirects his suspicions. He goes on to remark that if current income is greater than that for which existing capital was planned, then ‘an increase in the demand for consumers’ goods’ will increase the expected return from new investment, at any rate if
5198775
Economic history of Brazil


including a growing share of public investment and investment by state-controlled enterprises. In addition, increased demand for automobiles, durable and luxury goods, and housing resulted from a rapid growth in income for the upper income strata and from credit plans created for consumers and home-buyers by the capital-market reforms. The industrial sector generally experienced not only rapid growth but also considerable modernization. As a result, imports of capital goods and basic and semi-processed inputs increased sharply. The share of intermediate goods imports in total
4470086
Unemployment


would have to be high enough to motivate people to choose employment over what they receive through public welfare. Wages below a livable wage are likely to result in lower labor market participation in the above-stated scenario. In addition, consumption of goods and services is the primary driver of increased demand for labor. Higher wages lead to workers having more income available to consume goods and services. Therefore, higher wages increase general consumption and as a result demand for labor increases and unemployment decreases. Many economists have argued that unemployment increases
13128062
Engel curve


as the consumer has more income, they will buy less of the inferior good because they are able to purchase better goods. For goods with a Marshallian demand function generated from a utility function of Gorman polar form, the Engel curve is a straight line. Many Engel curves feature saturation properties in that their slope tends toward infinity at high income levels, which suggests that there exists an absolute limit on how much expenditure on a good will rise as household income increases. This saturation property has been linked to slowdowns in the growth
3087516
Demand


desires into effect. It is assumed that tastes and preferences are relatively constant. Consumer expectations about future prices, income and availability: If a consumer believes that the price of the good will be higher in the future, he/she is more likely to purchase the good now. If the consumer expects that his/her income will be higher in the future, the consumer may buy the good now. Availability (supply side) as well as predicted or expected availability also affects both price and demand. Population: If
7554012
Income elasticity of demand


In economics, income elasticity of demand measures the responsiveness of the quantity demanded for a good or service to a change in income. It is calculated as the ratio of the percentage change in quantity demanded to the percentage change in income. For example, if in response to a 10% increase in income, the quantity demanded for a good increased by 20%, the income elasticity of demand would be 20%/10% = 2.0. Income elasticity of demand can be used as an indicator of future consumption patterns and as a guide
17797525
Consumer spending


Consumer spending, consumption, or consumption expenditure is the acquisition of goods and services by individuals or families. It is the largest part of aggregate demand at the macroeconomic level. There are two components of consumer spending: induced consumption (which is affected by the level of income) and autonomous consumption (which is not). Taxes are a tool in the adjustment of the economy. Tax policies designed by governments affect consumer groups, net consumer spending and consumer confidence. Economists expect tax manipulation to increase or decrease consumer spending,
12450574
Monetary policy


Cheaper credit card interest rates boost consumer spending. Additionally, when business loans are more affordable, companies can expand to keep up with consumer demand. They ultimately hire more workers, whose incomes rise, which in its turn also increases the demand. This tool is usually enough to stimulate demand and drive economic growth to a healthy rate. Usually, the short-term goal of open market operations is to achieve a specific short-term interest rate target. In other instances, monetary policy might instead entail the targeting of a
6688501
Deflation


LM model (investment and saving equilibrium liquidity preference and money supply equilibrium model), deflation is caused by a shift in the supply and demand curve for goods and services. This in turn can be caused by an increase in supply, a fall in demand, or both. When prices are falling, consumers have an incentive to delay purchases and consumption until prices fall further, which in turn reduces overall economic activity. When purchases are delayed, productive capacity is idled and investment falls, leading to further reductions in aggregate demand
4346069
Necessity good


good is less than proportional to the rise in income, so the proportion of expenditure on these goods falls as income rises. If income elasticity of demand is lower than unity, it is a necessity good. This observation for food, known as Engel's law, states that as income rises, the proportion of income spent on food falls, even if absolute expenditure on food rises. This makes the income elasticity of demand for food between zero and one. Some necessity goods are produced by a public utility. According to
10365152
Wealth elasticity of demand


mental accounts" for income and assets, and points to empirical studies showing that the marginal propensity to consume extra income is one, but is lower for windfall asset increases.) Econometric research is ongoing to find good wealth elasticity parameters, especially in areas like house-price-related wealth effects. However, some patterns are widely believed to hold: If 'leisure time' is a superior good the income effect will partially cancel itself out, since people will work less as their hourly pay goes up. A change in
8063405
Economics


all buyers would be prepared to purchase at each unit price of the good. Demand is often represented by a table or a graph showing price and quantity demanded (as in the figure). Demand theory describes individual consumers as rationally choosing the most preferred quantity of each good, given income, prices, tastes, etc. A term for this is "constrained utility maximization" (with income and wealth as the constraints on demand). Here, utility refers to the hypothesized relation of each individual consumer for ranking different commodity
9155197
Balassa–Samuelson effect


RER has appreciated 14% (during the 1990s). The export sector of the Cape Verde economy suffered a similar fall in productivity during the same period, which was caused entirely by capital flows and not by the BS-effect. Rudi Dornbusch (1998) and others say that income rises can change the ratio of demand for goods and services (tradable and non-tradable sectors). This is because services tend to be superior goods, which are consumed proportionately more heavily at higher incomes. A shift in preferences at
17299607
Normal good


in the consumer's income causes the same direction change in the consumer's demand for good "x." There are two types of normal goods: necessity goods and luxury goods. A normal good is classified as a necessity good when ξ < 1 (i.e. when an "x"% change in income causes a change in x "less than x%"), whereas a normal good is a luxury good when ξ > 1 (i.e. when an "x"% change in income causes a change in x "greater than x%")
6884977
Economic surplus


. Consumer surplus is thus the definite integral of the demand function with respect to price, from the market price to the maximum reservation price (i.e. the price-intercept of the demand function): where formula_3 This shows that if we see a rise in the equilibrium price and a fall in the equilibrium quantity, then consumer surplus falls. The change in consumer surplus is used to measure the changes in prices and income. The demand function used to represent an individual's demand for a certain product is essential in determining the
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Superior good


increase. So, if income increases by 50% then consumption of a superior good will increase by more than 50% (maybe 51%, maybe 70%). In economics terminology, all goods with an income elasticity of demand greater than zero are "normal", but only the subset having income elasticity of demand  1 are "superior". Some texts on microeconomics use the term "superior good" as the sole alternative to an "inferior good", making "superior goods" and "normal goods"
3889751
Law of demand


example, a consumer may demand 2 kilograms of apples at $70 per kg; he may, however, demand 1kg if the price rises to $80 per kg. This has been the general human behaviour on relationship between the price of the commodity and the quantity demanded. The factors held constant refer to other determinants of demand, such as the prices of other goods and the consumer's income. There are, however, some possible exceptions to the law of demand, such as Giffen goods and Veblen goods.
15920749
Income–consumption curve


that the consumer consumes will increase, with an increase in the income of the consumer. Thus, the income–consumption curve for the perfect substitutes X and X will be the horizontal axis. In case of perfect complements, the same amount of goods will be consumed by the consumer irrespective of say income, prices etc. As the level of consumption remains the same, the income–consumption curve for perfect complements is the diagonal line passing through the origin as shown in Figure 5 on the left. In the figure on
12177043
Derived demand


positively on the quantity of the other consumed. Producers have a derived demand for employees. The employees themselves do not appear in the employer's utility function; rather, they enable employers to profit by fulfilling the demand by consumers for their product. Thus the demand for labour is a derived demand from the demand for goods and services. For example, if the demand for a good such as wheat increases, then this leads to an increase in the demand for labour, as well as demand for other factors of production such
14152863
Purchasing power


but the price level increases, the purchasing power of that income falls. Inflation does not "always" imply falling purchasing power of one's money income since the latter may rise faster than the price level. A higher real income means a higher purchasing power since real income refers to the income adjusted for inflation. Traditionally, the purchasing power of money depended heavily upon the local value of gold and silver, but was also made subject to the availability and demand of certain goods on the market. Most modern fiat currencies like
3262301
Superior good


the quantity of an item demanded increases with income, "but" not by enough to increase the share of the budget spent on it, then it is only a normal good and is not a superior good. Consumption of all normal goods increases as income increases. For example, if income increases by 50%, then consumption will increase (maybe by only 1%, maybe by 40%, maybe by 70%). A superior good is a normal good for which the proportional consumption increase exceeds the proportional income
3889750
Consumer choice


different motivations and abilities are involved. The models that make up consumer theory are used to represent prospectively observable demand patterns for an individual buyer on the hypothesis of constrained optimization. Prominent variables used to explain the rate at which the good is purchased (demanded) are the price per unit of that good, prices of related goods, and wealth of the consumer. The law of demand states that the rate of consumption falls as the price of the good rises, even when the consumer is monetarily compensated for the effect of the
8096315
Shortage economy


(an implicit economic cost) in further search for the good, or purchase a substitute good. According to Kornai, the purchase of a substitute is compulsory. Finally, it is possible that the consumer ends up purchasing a completely unrelated good due to the income effect simply in the hope that selling the unneeded item later will enable her to purchase the actual good she is seeking at a future time. This has the effect of increasing demand for other goods simply because they are there and can lead to the spread of shortages
2350812
Normal good


zero, the demand is infinite. A caveat to the table above is that not all goods are strictly normal or inferior across all income levels. For example, average used cars could have a positive income elasticity of demand at low income levels – extra income could be funneled into replacing public transportation with self-commuting. However, the income elasticity of demand of average used cars could turn negative at higher income levels, where the consumer may elect to purchase new and/or luxury cars instead. Another potential caveat is brought up by
6884979
Consumer goods in the Soviet Union


the infamous "Kitchen Debate." Although there was an effort to emphasize public over private consumption in the Soviet Union, nevertheless households earned incomes that they could use for the purchase of consumer goods or for savings. If households were unable to convert income into goods, a variety of incentives could arise. For example, in the event of excess demand for consumer goods, one would expect households to react by working less or accumulating savings or both. From the planners' viewpoint, it was necessary to balance the output of
168680
Economic surplus


welfare. If the price change in consumer surplus is negative, the price change is said to have decreased the individual's welfare. When supply of a good expands, the price falls (assuming the demand curve is downward sloping) and consumer surplus increases. This benefits two groups of people: consumers who were already willing to buy at the initial price benefit from a price reduction, and they may buy more and receive even more consumer surplus; and additional consumers who were unwilling to buy at the initial price will buy at
5157690
Consumer choice


a parallel shift of the budget constraint. Increasing the income will shift the budget constraint right since more of both can be bought, and decreasing income will shift it left. Depending on the indifference curves, as income increases, the amount purchased of a good can either increase, decrease or stay the same. In the diagram below, good Y is a normal good since the amount purchased increased as the budget constraint shifted from BC1 to the higher income BC2. Good X is an inferior good since the amount bought decreased as
8096323
Economy of Taiwan


rapidly as both economies become ever more interdependent. Imports from mainland China consist mostly of agricultural and industrial raw materials. Exports to the United States are mainly electronics and consumer goods. As Taiwanese per capita income level has risen, demand for imported, high-quality consumer goods has increased. Taiwan's 2002 trade surplus with the United States was $8.70 billion. The lack of formal diplomatic relations between the Republic of China (Taiwan) with Taiwan's trading partners appears not to have seriously hindered Taiwan's rapidly expanding commerce.
10890029
Snob effect


The snob effect is a phenomenon described in microeconomics as a situation where the demand for a certain good by individuals of a higher income level is inversely related to its demand by those of a lower income level. The "snob effect" contrasts most other microeconomic models, in that the demand curve can have a positive slope, rather than the typical negatively sloped demand curve of normal goods. This situation is derived by the desire to own unusual, expensive or unique goods. For consumers who want to use exclusive products, price
9666169
Value and Capital


's budget constraint. That hypothesis drives the theoretical outcome of a price change in one of the goods on the quantity demanded of each good. The book decomposes the change into the substitution effect and the income effect. The latter is the change in real income in theoretical terms without which the distinction between real and nominal values would be more problematic. The two effects are now standard in consumer theory. The analysis conforms with a proportionate change in money income and money prices of both goods leaving quantity demanded of both goods unchanged.
19988571
Giffen good


staple foods, whose demand is driven by poverty that makes their purchasers unable to afford superior foodstuffs. As the price of the cheap staple rises, they can no longer afford to supplement their diet with better foods, and must consume more of the staple food. There are three necessary preconditions for this situation to arise: If precondition #1 is changed to "The goods in question must be so inferior that the income effect is greater than the substitution effect" then this list defines necessary and sufficient conditions. The last condition
1037034
Demand


demanded and those factors that affect the willingness and ability of a consumer to buy the good. For example, Q = f(P; P, Y) is a demand equation where Q is the quantity of a good demanded, P is the price of the good, P is the price of a related good, and Y is income; the function on the right side of the equation is called the demand function. The semi-colon in the list of arguments in the demand function means that the variables to the right
7554014
Colonial Nigeria


members of their own ethnic group. In the immediate post-World War II period, Nigeria benefited from a favourable trade balance. Although per capita income in the country as a whole remained low by international standards, rising incomes among salaried personnel and burgeoning urbanization expanded consumer demand for imported goods. In the meantime, public sector spending increased even more dramatically than export earnings. It was supported not only by the income from huge agricultural surpluses but also by a new range of direct and indirect taxes imposed during the 1950s. The
14807545
Price elasticity of demand


the opposite case, when demand is "perfectly elastic", by definition consumers have an infinite ability to switch to alternatives if the price increases, so they would stop buying the good or service in question completely—quantity demanded would fall to zero. As a result, firms cannot pass on any part of the tax by raising prices, so they would be forced to pay all of it themselves. In practice, demand is likely to be only "relatively" elastic or relatively inelastic, that is, somewhere between
3026379
Tariff in United States history


sold to our people cheaper than before." Additionally, Lincoln argued that based on economies of scale, any temporary increase in costs resulting from a tariff would eventually decrease as the domestic manufacturer produced more. Lincoln did not see a tariff as a tax on low-income Americans because it would only burden the consumer according to the amount the consumer consumed. By the tariff system, the whole revenue is paid by the consumers of foreign goods… the burthen of revenue falls almost entirely on the wealthy and luxurious few, while
3583851
Protectionism in the United States


any temporary increase in costs resulting from a tariff would eventually decrease as the domestic manufacturer produced more. Lincoln did not see a tariff as a tax on low-income Americans because it would only burden the consumer according to the amount the consumer consumed. By the tariff system, the whole revenue is paid by the consumers of foreign goods ... the burthen of revenue falls almost entirely on the wealthy and luxurious few, while the substantial and laboring many who live at home, and upon home products, go entirely free. Lincoln
993200
Gorman polar form


function for the nonlinear good of consumers with quasilinear utilities does not depend on the income at all (in this quasilinear case, the demand for the linear good is linear in income): Hence, the aggregate demand function for the nonlinear good also does not depend on income: The entire society can be represented by a single representative agent with quasilinear utility function: where the function formula_31 satisfies the equality: In the special case in which all agents have the same utility function formula_33, the aggregate utility function is: The indirect
7915794
Luxury goods


In economics, a luxury good (or upmarket good) is a good for which demand increases more than proportionally as income rises, so that expenditures on the good become a greater proportion of overall spending. Luxury goods are in contrast to necessity goods, where demand increases proportionally less than income. "Luxury goods" is often used synonymously with "superior goods" and "Veblen goods". The word "luxury" originated from the Latin word "luxus", which means indulgence of the senses, regardless of cost.
13628032
Consumer demand tests (animals)


resource, sometimes called 'low elasticity', or 'inelastic demand.' The 'break point' is the cost at which inelastic demand becomes elastic, i.e. the cost at which constant consumption begins to decrease. In human economics and consumer theory, a Giffen good is a resource which is paradoxically consumed more as the cost rises, violating the law of demand. In normal situations, as the price of a resource increases, the substitution effect causes consumers to purchase less of it and more of substitute goods. In the
22053496
Intangible good


with a service. A good is defined as an object whose consumption increases the utility of the consumer, for which the quantity demanded exceeds the quantity supplied at zero price. In the most restricted sense, some people argue all objects are physical, and the resulting definition B leaves no place for intangible goods and classifies all of them as services. (C) In a more ordinary sense, and a middle ground between definitions A and B, an object can be intangible, and we have the definition C of good.
10392999
Substitution effect


In economics and particularly in consumer choice theory, the substitution effect is one component of the effect of a change in the price of a good upon the amount of that good demanded by a consumer, the other being the income effect. When a good's price decreases, if hypothetically the same consumption bundle were to be retained, income would be freed up which could be spent on a combination of more of each of the goods. Thus the new total consumption bundle chosen, compared to the old one, reflects both the
12177072
Inferior good


the income effect of a price increase would produce, effectively, more demand. The observed demand curve would slope "upward", indicating positive elasticity. It was noted by Sir Robert Giffen that in Ireland during the 19th century there was a rise in the price of potatoes. The poor people were forced to reduce their consumption of meat and expensive items such as eggs. Potatoes still being the cheapest food, in order to compensate they started consuming more even though its price was rising. This phenomenon is often described as "
6884975
Marginal propensity to consume


which means that when income increases the whole of it is not spent on consumption. On the contrary, when income falls, consumption expenditure does not decline in the same proportion and never becomes zero. The Keynesian hypothesis is that the marginal propensity to consume is positive but less than unity (formula_34) is of great analytical and practical significance. Besides telling us that consumption is an increasing function of income and it increases by less than the increment of income, this hypothesis helps in explaining 1) The theoretical possibility of general overproduction
12450556
Linder hypothesis


the hypothesis. Econometric tests of the hypothesis usually proxy the demand structure in a country from its per capita income: It is convenient to assume that the closer are the income levels per consumer the closer are the consumer preferences. (That is, the proportionate demand for each good becomes more similar, for example following Engel's law on food and non-food spending.) Econometric test of the hypothesis has been difficult because countries with similar levels of per capita income are generally located close to each other geographically, and distance
13854936
Hicksian demand function


the income effect will offset in some degree the substitution effect. The Hicksian demand function is also downward sloping, but isolates the substitution effect by supposing the consumer is compensated exactly enough to purchase some bundle on the same indifference curve. Hicksian demand illustrates the consumer's new consumption basket after the price change while being compensated as to allow the consumer to be as happy as previously (to stay at the same level of utility). If the Hicksian demand function is "steeper" than Marshallian demand, the good is a normal
19291067
Consumer choice


's new consumption basket after the price change while being compensated as to allow the consumer to be as happy as he or she was previously. By this effect, the consumer is posited to substitute toward the good that becomes comparatively less expensive. In the illustration below this corresponds to an imaginary budget constraint denoted SC being tangent to the indifference curve I1. Then the income effect from the rise in purchasing power from a price fall reinforces the substitution effect. If the good is an "inferior good", then the income effect
8096325
Economics


combination from a shift in demand (as to the figure), or in supply. For a given quantity of a consumer good, the point on the demand curve indicates the value, or marginal utility, to consumers for that unit. It measures what the consumer would be prepared to pay for that unit. The corresponding point on the supply curve measures marginal cost, the increase in total cost to the supplier for the corresponding unit of the good. The price in equilibrium is determined by supply and demand. In a
9155203
Domestic sourcing


, more job opportunities is then created to meet the new demands. According to IGD report, over 54% of consumers buy local food as they feel obliged to support local producers and farmers in 2006. An increase in domestic sourcing for the labour force would benefit the economy of the state or country by increasing the circular flow of income; it is estimated that every £10 spent on local product is worth a £25 increase in the circular flow of income of the local economy. When there is an increase in demand
4417256
Progressive tax


policy in mitigating or exacerbating wealth inequality and the effects on economic growth . Progressive taxation has a direct effect on reducing income inequality. This is especially true if taxation is used to fund progressive government spending such as transfer payments and social safety nets. However, the effect may be muted if the higher rates cause increased tax evasion. When income inequality is low, aggregate demand will be relatively high, because more people who want ordinary consumer goods and services will be able to afford them, while the labor force will not be
8221319
Distribution of the FairTax burden


consume (MPC) decreases as income increases. Households at the lower end of the income scale spend almost all their income, while households at the higher end are more likely to devote a portion of income to saving. However, MPC and income elasticity of demand tend to increase as wealth increases. These facts explain the apparent contradiction in the data; households at the extreme high end of consumption often finance their purchases out of savings, not income. This savings would be taxed when it becomes a purchase. Income earned and
12071766
Prebisch–Singer hypothesis


(ISI). A common explanation for this supposed phenomenon is that manufactured goods have a greater income elasticity of demand than primary products, especially food. Therefore, as incomes rise, the demand for manufactured goods increases more rapidly than demand for primary products. In addition, primary products have a low price elasticity of demand, so a decline in their prices tends to reduce revenue rather than increase it. This theory implies that the very structure of the global market is responsible for the persistent inequality within the world system. This
16131580
Capitalism


are willing and able to purchase at various prices, assuming all determinants of demand other than the price of the good in question, such as income, tastes and preferences, the price of substitute goods and the price of complementary goods, remain the same. According to the law of demand, the demand curve is almost always represented as downward-sloping, meaning that as price decreases, consumers will buy more of the good. Just like the supply curves reflect marginal cost curves, demand curves are determined by marginal utility curves
5265119
Economic equilibrium


new demand schedule, such as the following: Here we see that an increase in disposable income would increase the quantity demanded of the good by 2,000 units at each price. This increase in demand would have the effect of shifting the demand curve rightward. The result is a change in the price at which quantity supplied equals quantity demanded. In this case we see that the two now equal each other at an increased price of $6.00. Note that a decrease in disposable income would have the exact opposite effect on the market
6694983
Free price system


of production to be applied toward increasing output of the good that has risen in the hierarchy of consumer preferences. Also, as resources become more scarce the price increases, which signals to consumers to reduce consumption thereby ensuring that the quantity demanded does not exceed the quantity supplied. It is in this way that the free price system persuades consumers to ration dwindling resources. Hence, supply and demand affect price, while at the same time price affects supply and demand. If prices remain high because increases in supply cannot keep pace
9738809
Pigovian tax


real net wage. But because C's price has not changed and it can substitute for D, consumers will buy C instead of D. Suddenly the government's environmental tax base has eroded and its revenue with it. The government then cannot afford to keep the labor income tax down. Bovenberg and Mooij posit that the increase in the price of goods will outweigh the slight decrease in the income tax. Labor and leisure become more interchangeable the lower the real net wage (or after-tax wage) falls. With this
7806673
Conflict in the Niger Delta


portions of food unaffected by oil spills. This has increased hunger in families and individuals of all ages, leading to a country of predominant malnutrition. There is also a higher demand for food of good quality, but not enough monetary income, which leads to sex exchanges that ultimately transmit diseases such as HIV/AIDS, and increase teenage pregnancy and illegal abortions. Citizens briefly mention their bodily experience when consuming local crops and protein in the HBO documentary, "The Battle Raging in Nigeria over Control of Oil". The implications
22188186
New Economic Policy


, and financial institutions remained owned and run by the state. This created an imbalance in the economy where the agricultural sector was growing much faster than heavy industry. To maintain their income, factories raised prices. Due to the rising cost of manufactured goods, peasants had to produce much more wheat to buy these consumer goods, which increased supply and thus lowered the price of these agricultural products. This fall in prices of agricultural goods and sharp rise in prices of industrial products was known as the Scissors Crisis (due to the
19203389
AD–AS model


it. The slope of AD curve reflects the extent to which the real balances change the equilibrium level of spending, taking both assets and goods markets into consideration. An increase in real balances will lead to a larger increase in equilibrium income and spending, the smaller the interest responsiveness of money demand and the higher the interest responsiveness of investment demand. An increase in real balances leads to a larger level of income and spending, the larger the value of multiplier and the smaller the income response of money demand. This implies that
12826489
Wealth elasticity of demand


The wealth elasticity of demand, in microeconomics and macroeconomics, is the proportional change in the consumption of a good relative to a change in consumers' wealth (as distinct from changes in personal income). Measuring and accounting for the variability in this elasticity is a continuing problem in behavioral finance and consumer theory. The wealth elasticity of consumption quantity for some good will determine the size of the expenditure shift due to "unexpected" changes in net personal wealth, "ceteris paribus" (i.e. the size of the so-called
8063399
Income elasticity of demand


to firms’ investment decisions. For example, the "selected income elasticities" below suggest that an increasing portion of consumers' budgets will be devoted to purchasing automobiles and restaurant meals and a smaller share to tobacco and margarine. Income elasticities are closely related to the population income distribution and the fraction of the product's sales attributable to buyers from different income brackets. Specifically when a buyer in a certain income bracket experiences an income increase, their purchase of a product changes to match that of individuals in their new income bracket.
17797526
Trade in the East African Community


of food. This theory states that when per capita global income increases, demand for luxury goods increases causing the relative price fall of goods like food. The total exports to the EU was 2.4 billion Euros in 2017. The majority of imports from the EU is machinery, mechanical appliances, equipment, parts, vehicles, and pharmaceuticals. The total imports from the EU was 3.6 billion Euros in 2017. The United States and EAC have signed their own Trade and Investment Agreement (TIFA) and a cooperation agreement. TIFA attempts
10513515
Homothetic preferences


theory. In a model where competitive consumers optimize homothetic utility functions subject to a budget constraint, the ratios of goods demanded by consumers will depend only on relative prices, not on income or scale. This translates to a linear expansion path in income: the slope of indifference curves is constant along rays beginning at the origin. This is to say, the Engel curve for each good is linear. Furthermore, the indirect utility function can be written as a linear function of wealth formula_5: which is a special case of the
7812396
Value and Capital


Value and Capital is a book by the British economist John Richard Hicks, published in 1939. It is considered a classic exposition of microeconomic theory. Central results include: The book has 19 chapters and the following outline: It begins with a simplified case and generalises from it. An individual consumer has a given money income for spending on only two goods. What determines quantity demanded of each good by that individual? The basic hypothesis is the set of restrictions on the utility function and demand equilibrium that results as to the consumer
19988570
Big push model


in one industry consume the output of other industries and thus create complementary demand. To illustrate this, Rosenstein Rodan gives the example of a shoe industry. If a country makes large investments in the shoe industry, all the disguisedly employed labor from the other industries find work and a source of income, leading to a rise in production of shoes and their own incomes. This increased income will not be expended only on buying shoes. It is conceivable that the increased incomes will lead to increased spending on other products too. However
15266079