This will have begative income elasticity of demand.
Thus as income falls, demand rises.
Equally as income rises, demand falls.
OK....
If the price of the inferior good rises then real income falls.
Thus as per above, more is demanded.
So, the price of inferior godos rises and so does demand. So all retailers who sell cheap and tacky goods have to do is...raise the price!
Yeah?
Now let's deal with some of the comments:
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If the price for inferior good rises the difference between inferior good and normal good will get less and because of that more people will switch to the normal good.
Yes but not everyone. I am referring to the people that do NOT switch!
In addition to that if the price of an inferior good rises it doesn't mean that the real income of all people becomes less. It will become less only for those who buy only that good.
- I am referring to the people who buy the good. So, do you agree that to make more profit all the retailer has to do is raise the price?
- 03 May 2009 23:45
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I think the answer could be :
If the real income falls because of people spent more on inferior goods, therefore the inferior goods wont be demanded more because they bought inferior goods already. But if the good is a consumer non-durable then there may be regular puchases
Rise in price of inferior goods will depend on how much demand response to the change in prise, it does not depend on the YED.
- 04 May 2009 00:25
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"If the price of the inferior good rises then real income falls.
Thus as per above, more is demanded."
Not agree,about inferior goods,we're not considering about the price
the demand of inferior goods in focus on the rise or fall of income, it does not depend on the price of the inferior good.
ReplyDeleteIf the price for inferior good rises the difference between inferior good and normal good will get less and because of that more people will switch to the normal good. In addition to that if the price of an inferior good rises it doesn't mean that the real income of all people becomes less. It will become less only for those who buy only that good.
ReplyDeleteI think the answer could be :
ReplyDeleteIf the real income falls because of people spent more on inferior goods, therefore the inferior goods wont be demanded more because they bought inferior goods already.
Rise in price of inferior goods will depend on how much demand response to the change in prise, it does not depend on the YED.
"If the price of the inferior good rises then real income falls.
ReplyDeleteThus as per above, more is demanded."
Not agree,about inferior goods,we're not considering about the price.
So what's the answer though??????
ReplyDeleteI think the answer should be:
ReplyDeleteinferior good is a good that decreases in demand when consumer income rises, which means change in income responsiveness change in demand. Here not only consider the price, but also consider the different situations, because we know the different level people have different needs. so for some poor people, they just can or would like purchase on inferior goods. So if the price of it increase, but depends on how much increase, if a little bit, poor people will still by it, because for them the other things is difficult to afford. Then for some normal people , they can make opportunity cost, because for them both of normal goods and inferior good that the can consume, but they will make a opportunity cost to decide which one is better. Also depends on the YED, and then if the price goes up a lot by retailer, the demand will decrease, because they will think normal goods is better.
For rich people, they do not buy the inferior goods, so the price up or down, they do not care.
so, according to above the price increase depends on how much increase, which one can increase for your consumer. etc.
also I think I need mention giffen good, because it is also a inferior good, but this goods is when price increase the demand is increase. for example, when we still buy some potato and bread, when the price of bread increase, and potato as well but not a lot. the consumer may forgone to buy bread and spend more money to buy potato, therefore the demand of potato increase. So here, if the retainer increase the price the demand will increase.
so the answer of the retailer need increase the price or not, is not very easy to measure , because it depends on the size of price that they increased and how about the YED and who is the consumer of those goods for example consumer in Africa and consumer in America.