Question

How do changes in income of the household affect his demand for a commodity?

Answer 1

Changes in the income of a household directly affect its demand for various commodities. The impact depends on the nature of the commodity:

1. Normal Goods: When income increases, the demand for normal goods also increases. Example: Milk, fruits, branded clothing.
2. Inferior Goods: For inferior goods, as income increases, the demand decreases. Households switch to better-quality alternatives. Example: Coarse grains, low-quality goods.
3. Luxury Goods: Luxury goods typically see a disproportionate increase in demand as income rises, meaning that the percentage increase in demand is higher than the percentage increase in income. These goods are generally not essential but are desired when people can afford them. Example: High-end cars, designer clothing, and expensive vacations often see a substantial rise in demand as household income grows.