Question

Explain with the help of diagram, the effect of the following change on the demand of a commodity: 

all in the income of its buyer.

Answer 1

A fall in the income of a buyer affects the demand for a commodity differently depending on whether it is a normal good or an inferior good.

1. Normal Goods: When the income of a buyer falls, the demand for normal goods decreases. For example, the demand for branded clothes may decrease.
   
2. Inferior Goods: When the income of a buyer falls, the demand for inferior goods increases. For example, the demand for coarse grains may increase.