Question

How does a change in income of the consumer affects the demand for a commodity?​

Answer 1

Answer:

The Income Effect and Changes in Demand:

Changes in real income can result from nominal income changes, price changes, or currency fluctuations. When nominal income increases without any change to prices, this makes consumers able to purchase more goods at the same price, and for most goods consumers will demand.

Answer 2

Hey!!

In a free market economy, price is determined by demand of a product and supply of the product, keeping other factor constant.

So when income of consumer increases, purchasing power of consumer increases which in turn would increase the demand of commodity. Similarly if income of consumer decreases, purchasing power of consumer decreases which would decrease the demand of commodity.

But this is true in a simple market.

In real life other factors comes into play. These are

Inflation — Inflation effect the real income of consumer. So if inflation is high, nominal income may increases, but real income might not.

Type of commodity — if it's a necessary product like food etc, then increase in income would increase it's demand but up to a limit not beyond that because consumer is already purchasing good amount of necessary product even when income is less. So increase in income will not lead to drastic increase in demand of product. Same is the case when income would decrease

Availability of other related commodity — if a person is buying millets and income increases, then person would prefer buying pulses, cereal more rather then increasing demand of millets.

Hope this helps!!