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:
The rise in price depends on the reaction of demand?????
- 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
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 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.