Question

. Explain how do the following influence demand for a good: -
(a) Rise in income of the consumer
(b) Fall in price of related goods​

Answer 1

Answer:

A rise in the income of the consumer will increase the demand for the good. In the case of Luxury goods and services, demand rises more than proportionate to a change in income. Inferior goods have a negative income elasticity of demand meaning that demand falls as income rises.

Fall in Prices of the Related Goods: Related goods may be complementary or supplementary. In Case of Substitute Goods: Let “A” and “B” are substitutes. If the price of the good “A” falls, then the consumer will shift their preference towards that good “A”. As a result, the demand for the good “B” decreases

Answer 2

Answer:

A rise in the income of the consumer will increase the demand for the good. In the case of Luxury goods and services, demand rises more than proportionate to a change in income. Inferior goods have a negative income elasticity of demand meaning that demand falls as income rises.