Question

explain the chain effect of increase in income of buyers of a commodity on its demand.​

Answer 1

Explanation:

The extent to which the demand for a commodity is influenced by the increase in income depends upon the nature of the good, that is, whether the good is a normal good or an inferior good.

 

(i) Normal Good

If the good is a normal good, then with increase in income, the demand for good increases.

Income ↑ ⇒ Demand ↑ 

 

(ii) Inferior Good

If the good is an inferior good, then with increase in income the consumer’s demand falls for such goods.

Income ↑ ⇒ Demand ↓