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Good X is an inferior good since the amount bought decreases from X1 to X2 as income increases. In economics, inferior goods are those goods the demand for which falls with increase in income of the consumer. So, there is an inverse relationship between income of the consumer and the demand for inferior goods. [1]
By extending Panel (a) to Panel (b), the Engel curve for good X is obtained by connecting the points R’, S’, and T’. [3] The shapes of Engel curves depend on many demographic variables and other consumer characteristics. A good's Engel curve reflects its income elasticity and indicates whether the good is an inferior, normal, or luxury good.
In economics and particularly in consumer choice theory, the income-consumption curve (also called income expansion path and income offer curve) is a curve in a graph in which the quantities of two goods are plotted on the two axes; the curve is the locus of points showing the consumption bundles chosen at each of various levels of income.
the good in question must be an inferior good, there must be a lack of close substitute goods, and; the goods must constitute a substantial percentage of the buyer's income, but not such a substantial percentage of the buyer's income that none of the associated normal goods are consumed.
A positive income elasticity of demand is associated with normal goods; an increase in income will lead to a rise in quantity demanded. If income elasticity of demand of a commodity is less than 1, it is a necessity good. If the elasticity of demand is greater than 1, it is a luxury good or a superior good.
An intermediate good is a good utilized in the process of creating another good, effectively named the final good. [17] It is important to note that the cooperation of several inputs in many circumstances yields a final good and thus the demand for these goods is derived from the demand of the final product; this concept is known as derived ...
If the good is a Giffen good, the income effect is so strong that the Marshallian quantity demanded rises when the price rises. The Hicksian demand function isolates the substitution effect by supposing the consumer is compensated with exactly enough extra income after the price rise to purchase some bundle on the same indifference curve. [ 2 ]
Inferior goods with negative income elasticity, assume negative slopes for their Engel curves. In the case of food, the Engel curve is concave downward with a positive but decreasing slope. [9] [8] Engel argues that food is a normal good, yet the share of household's budget spent on food falls as income increases, making food a necessity. [4] [8]