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

Question

Write your comment of the statement in a sentence or two:

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

Answer 1

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, DD, as shown in the diagram shifts leftward, i.e., from DD to D₁D₁ . The new equilibrium struck at point E₁ . The equilibrium price decreases from OP to OP₁ .