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Gooods

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Bikram Pradhan
Bikram Pradhan

Normal goods are those whose demand increases with income. TV is provided as an example of a normal good, as its demand rises with higher income. Inferior goods are those whose demand decreases with higher income, such as black-and-white TVs which may be replaced by color TVs. For normal goods, higher income leads to a rightward shift in demand, while for inferior goods higher income causes a leftward shift in demand. Changes in income cause the demand curve to shift right or left depending on whether the good is normal or inferior.

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Gooods
Normal Goods: • Most of the commodities that we usually buy are normal (superior) goods. As a general practice, a consumer buys more of such goods, when his income rises and less of it when his income falls. The commodities that follow this rule are called ‘Normal Goods’. • Normal goods refer to those goods whose demand increases with an increase in income. For example, if the demand for TV increases with a rise in income, then TV will be called a normal good. Income effect is positive in case of normal goods.
• In Fig. 3.16, income of the consumer is shown on the Y-axis and demand for a normal good (say, TV) is shown on the X-axis. When income rises from OY to OY1, the demand for TV also rises from OQ to OQ1.
Inferior Goods: • Inferior goods refer to those goods whose demand decreases with an increase in income. It means that there exists an inverse relationship between income and the demand for inferior goods. So, income effect is negative in case of inferior goods. • For example, if the income of a consumer rises and he prefers to replace his black- and- white (B/W) TV with a coloured one, then demand for B/W TV will fall. In such case, B/W TV is an inferior good.
• In Fig. 3.17, income of the consumer is shown on the Y-axis and demand for an inferior good (B/W TV) is shown on the X-axis. When income rises from OY to OY1, the demand for B/W TV falls from OQ to OQ1 as the consumer shifts to Colour TV. • The Fig. 3.16 and Fig. 3.17 are also not demand curves as they show the relationship between demand for the given commodity and income of the consumer.
Effect on Demand Curve (with change in Income): • A change in income causes a positive change in demand for normal goods, whereas, a negative change occurs in the case of inferior goods. So, the demand curve of a given commodity is affected by change in income in case of normal goods and inferior goods. It must be noted that there is no change in demand for the necessity goods with increase or decrease in income. • Let us discuss the effect of change in income on the demand curve of given commodity in case of ‘Normal Goods’ and ‘Inferior Goods’.
Change in Income (Normal Goods): A change (increase or decrease) in the income of consumer directly affects the demand for a given commodity. i. Increase in Income: As income rises, the demand for normal goods (say, TV) also rises from OQ to OQ1 at the same price of OP. It leads to a rightward shift in the demand curve of normal good from DD to D1D1.
(ii) Decrease in Income: • With fall in income, the demand for normal goods (TV) falls from OQ to OQ1 at the same price of OP. It shifts the demand curve of normal good towards left from DD to D1D1.
Change in Income (Inferior Goods) An increase or decrease in income affects the demand inversely, if the given commodity is an inferior good. I. Increase in Income: As income increases, the demand for inferior goods (say, black- and-white TV) falls from OQ to OQ1 at the same price of OP. It leads to a leftward shift in the demand curve of inferior good from DD to D1D1.
II. Decrease in Income: • As income decreases, the demand for inferior goods (say, black-and-white TV) rises from OQ to OQ1 at the same price of OP. It leads to a rightward shift in the demand curve of inferior good from DD to D1D1.
Rightward and Leftward Shift in Demand Curve • In addition to change in prices of related goods and income of the consumer, the demand curve also shifts due to various other factors. Let us have a graphical review of all the factors, which lead to a rightward shift (Fig. 3.22) or leftward shift (Fig. 3.23), in the demand curve.
Demand curve shifts towards right because of: 1. Increase in price of Substitute Goods 2. Decrease in price of Complementary Goods 3. Increase in income (Normal Goods) 4. Decrease in income (Inferior Goods) 5. Increase in Population 6. Tastes in favour of commodity 7. Expectation of future increase in price
Demand curve shifts towards left because of: I. Decrease in price of Substitute Goods II. Increase in price of Complementary Goods III. Decrease in income (Normal Goods) IV. Increase in income (Inferior Goods) V. Decrease in Population VI. Tastes not in favour of commodity VII. Expectation of future decrease in price

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Gooods

  • 2. Normal Goods: • Most of the commodities that we usually buy are normal (superior) goods. As a general practice, a consumer buys more of such goods, when his income rises and less of it when his income falls. The commodities that follow this rule are called ‘Normal Goods’. • Normal goods refer to those goods whose demand increases with an increase in income. For example, if the demand for TV increases with a rise in income, then TV will be called a normal good. Income effect is positive in case of normal goods.
  • 3. • In Fig. 3.16, income of the consumer is shown on the Y-axis and demand for a normal good (say, TV) is shown on the X-axis. When income rises from OY to OY1, the demand for TV also rises from OQ to OQ1.
  • 4. Inferior Goods: • Inferior goods refer to those goods whose demand decreases with an increase in income. It means that there exists an inverse relationship between income and the demand for inferior goods. So, income effect is negative in case of inferior goods. • For example, if the income of a consumer rises and he prefers to replace his black- and- white (B/W) TV with a coloured one, then demand for B/W TV will fall. In such case, B/W TV is an inferior good.
  • 5. • In Fig. 3.17, income of the consumer is shown on the Y-axis and demand for an inferior good (B/W TV) is shown on the X-axis. When income rises from OY to OY1, the demand for B/W TV falls from OQ to OQ1 as the consumer shifts to Colour TV. • The Fig. 3.16 and Fig. 3.17 are also not demand curves as they show the relationship between demand for the given commodity and income of the consumer.
  • 6. Effect on Demand Curve (with change in Income): • A change in income causes a positive change in demand for normal goods, whereas, a negative change occurs in the case of inferior goods. So, the demand curve of a given commodity is affected by change in income in case of normal goods and inferior goods. It must be noted that there is no change in demand for the necessity goods with increase or decrease in income. • Let us discuss the effect of change in income on the demand curve of given commodity in case of ‘Normal Goods’ and ‘Inferior Goods’.
  • 7. Change in Income (Normal Goods): A change (increase or decrease) in the income of consumer directly affects the demand for a given commodity. i. Increase in Income: As income rises, the demand for normal goods (say, TV) also rises from OQ to OQ1 at the same price of OP. It leads to a rightward shift in the demand curve of normal good from DD to D1D1.
  • 8. (ii) Decrease in Income: • With fall in income, the demand for normal goods (TV) falls from OQ to OQ1 at the same price of OP. It shifts the demand curve of normal good towards left from DD to D1D1.
  • 9. Change in Income (Inferior Goods) An increase or decrease in income affects the demand inversely, if the given commodity is an inferior good. I. Increase in Income: As income increases, the demand for inferior goods (say, black- and-white TV) falls from OQ to OQ1 at the same price of OP. It leads to a leftward shift in the demand curve of inferior good from DD to D1D1.
  • 10. II. Decrease in Income: • As income decreases, the demand for inferior goods (say, black-and-white TV) rises from OQ to OQ1 at the same price of OP. It leads to a rightward shift in the demand curve of inferior good from DD to D1D1.
  • 11. Rightward and Leftward Shift in Demand Curve • In addition to change in prices of related goods and income of the consumer, the demand curve also shifts due to various other factors. Let us have a graphical review of all the factors, which lead to a rightward shift (Fig. 3.22) or leftward shift (Fig. 3.23), in the demand curve.
  • 12. Demand curve shifts towards right because of: 1. Increase in price of Substitute Goods 2. Decrease in price of Complementary Goods 3. Increase in income (Normal Goods) 4. Decrease in income (Inferior Goods) 5. Increase in Population 6. Tastes in favour of commodity 7. Expectation of future increase in price
  • 13. Demand curve shifts towards left because of: I. Decrease in price of Substitute Goods II. Increase in price of Complementary Goods III. Decrease in income (Normal Goods) IV. Increase in income (Inferior Goods) V. Decrease in Population VI. Tastes not in favour of commodity VII. Expectation of future decrease in price