Impact of Income Change on Inferior Goods: An Analysis with Indifference Curve

University:
Elon University
Course:
ECO 1000 | Economics
Academic year:

2024
Views:

408

Pages:

1
Author:

Masadepan C.

Impact of Income Change on Inferior Goods: An Analysis with Indifference Curve. Change in income with the case of inferior goods A consumer has an income (M) of 90, the price of instant noodles (Px) is 8, the price of fried chicken (Py) is 15, with this income the consumer buys goods X by 5 and buys goods Y by 3. When the consumer's income increases to 160, he buys goods X by 2 and buys goods Y by 9. Diket: Px = 8Py M = 90M M/Px = 11.25M/P M/Py = 6M/P X1 = 5X2 Y1 = = 15 ' = 160 'x = 20 'y = 10.67 =2 3Y2 = 9 y 10,67 B 9 6 A 3BL 2 BL 1 x 2511 , 2520 Explanation: From the curve above, it can be seen that increasing income affects the consumption power of X (instant noodles) and Y (fried chicken). At first, the consumption of good X is 5 and the consumption of good Y is 3. Then, the consumption of good X changes to 2 and the consumption of good Y becomes 9, this incident is in accordance with the definition of inferior goods, namely the amount of demand will decrease as consumer income increases. When the level of people's income is low, the level of demand for these goods is high, the goods in question in this case are instant noodles which are inferior goods From this case, the quantity of good X decreases and the quantity of good Y increases due to an increase in income which was originally 90 to 160. From the curve above, it is known that IC 2 is located above IC 1, which means that the satisfaction of IC 2 is higher than the satisfaction of IC 1. So, if income is increased, it can result in increased satisfaction.