Does an increase in income always shift the demand curve outwards to the right? Explain your answer.

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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If you are asking about the demand curve for individual goods, then the answer is no.  An increase in the income of the consumer does not always lead to an increase in demand.

For most products, an increase in consumer income does lead to an increase in demand.  In general, people want more things and will buy them if they are able to afford them.  Therefore, an increase in income leads to an increase in demand.

However, there are some things that people do not really like.  These are things that they buy because they cannot afford better things.  For these goods, which economists call “inferior goods,” demand actually declines when incomes rise.  When income rises and people can afford better goods, they stop buying these inferior goods.  An example of this might be goods from dollar stores.  People might shop at such stores when their incomes are low, but choose to shop at higher-quality stores when they get more money.  In this way, it is not always true that an increase in consumer income will lead to an increase in demand (movement out and to the right of the demand curve).

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