Question

Explain how do the following influece demand for a good : (i) Rise in income of the consumer , (ii) Fall in prices of the related goods.

Answer 1

(i) In case the good is a normal good, a rise in income of the consumer leads to an increase in demand for the good.
If the good is an inferior good, a rise in income of the consumer leads to a decrease in demand of the commodity.
(ii) If the two goods are substitues, then a fall in price of one good leads to fall in demand of the other good. On the other hand, if the two goods are complementary goods, a fall in price of one good leads to an increase in demand of the other good.