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We know that changes in the price of coffee affect the quantity of coffee demanded. We know from budget studies, from historical experience, and from examining our own behavior. We now review the discussion in light of our analysis of consumer behavior.
An increase in income tends to increase the amount we are willing to buy of most goods. Necessities tend to be less responsive than most goods to income changes, while luxuries tend to be more responsive to income. And there are a few anomalous goods, known as inferior goods, for which purchases may shrink as incomes increases because people can afford to replace them with other, more desirable goods. Soup bones, intercity bus travel, and used TVs are example of inferior goods for Americans today.
What does this entire mean in terms of the demand curve? The demand curve shows how the quantity of a good demanded responds to a change in its own price. But the demand is also affected by the prices of other goods, by consumer incomes, and by special influence. The demand curve was drawn on the assumption that these other things were held constant. But what if these other things change? Then the whole demand curve will shift to the right or to the left.
An increase in income tends to increase the amount we are willing to buy of most goods. Necessities tend to be less responsive than most goods to income changes, while luxuries tend to be more responsive to income. And there are a few anomalous goods, known as inferior goods, for which purchases may shrink as incomes increases because people can afford to replace them with other, more desirable goods. Soup bones, intercity bus travel, and used TVs are example of inferior goods for Americans today.
What does this entire mean in terms of the demand curve? The demand curve shows how the quantity of a good demanded responds to a change in its own price. But the demand is also affected by the prices of other goods, by consumer incomes, and by special influence. The demand curve was drawn on the assumption that these other things were held constant. But what if these other things change? Then the whole demand curve will shift to the right or to the left.
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