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Suppose a decrease in consumer income causes a decrease in the demand for chicken and...

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yaga49 | (Level 1) Valedictorian

Posted April 19, 2013 at 10:13 AM via web

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Suppose a decrease in consumer income causes a decrease in the demand for chicken and an increase in the demand for potatoes.  Which good is inferior and which is normal? 

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted April 19, 2013 at 1:33 PM (Answer #1)

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In this scenario, the normal good is chicken and the inferior good is potatoes.  This is because the demand for potatoes increases as consumer income goes down.  The law of demand tells us that the opposite is what should happen (as it does with chicken) when incomes drop.

One of the major non-price determinants of demand is consumer income.  It makes sense logically that people who have more money should buy more of everything.  However, this is not true for inferior goods.  Inferior goods are goods that are seen as less desirable.  People will buy them if they need to, but they would prefer not to.  Therefore, when consumers come to have more income, they stop buying those goods.  Inferior goods are said to include things like public transportation and goods from dollar stores.

When consumer income drops, demand for inferior goods rises.  Ironically, this means that the prices of such goods rise while the prices of the normal goods will drop.  If this trend continues long enough and to a great enough degree, people might switch back to the normal goods since the inferior goods will cost too much.

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