Individual demand Normal good vs. Inferior good ■ Income Changes o When the income-consumption curve has a positive slope The quantity demanded increases with income e The income elasticity of demand is positive e The good is a normal good Chapter 4 Slide 16
Chapter 4 Slide 16 Individual Demand ◼ Income Changes ⚫ When the income-consumption curve has a positive slope: ◆ The quantity demanded increases with income. ◆ The income elasticity of demand is positive. ◆ The good is a normal good. Normal Good vs. Inferior Good
Individual demand Normal good vs. Inferior good ■ Income Changes o When the income-consumption curve has a negative slope: The quantity demanded decreases with income e The income elasticity of demand is negative The good is an inferior good Chapter 4 Slide 17
Chapter 4 Slide 17 Individual Demand ◼ Income Changes ⚫ When the income-consumption curve has a negative slope: ◆ The quantity demanded decreases with income. ◆ The income elasticity of demand is negative. ◆ The good is an inferior good. Normal Good vs. Inferior Good
An Inferior Good Steak 15 (units per Income-Consumption month) Curve Both hamburger and steak behave as a normal good 10 between a and B U but hamburge becomes an inferior good when the income consumption curve bends backward U2 between B and c U Hamburg 5 20 30(units per month) Chapter 4 Slide 18
Chapter 4 Slide 18 An Inferior Good Hamburger (units per month) Steak (units per month) 15 30 U3 C Income-Consumption Curve …but hamburger becomes an inferior good when the income consumption curve bends backward between B and C. 5 10 20 5 10 A U1 B U2 Both hamburger and steak behave as a normal good, between A and B
Individual demand ■ Engel Curves o Engel curves relate the quantity of good consumed to income If the good is a normal good, the Engel curve is upward sloping o If the good is an inferior good, the Engel curve is downward sloping Chapter 4 Slide 19
Chapter 4 Slide 19 Individual Demand ◼ Engel Curves ⚫ Engel curves relate the quantity of good consumed to income. ⚫ If the good is a normal good, the Engel curve is upward sloping. ⚫ If the good is an inferior good, the Engel curve is downward sloping
Engel Curves Income (S per month)30 Engel curves slope upward for 20 normal goods. 10 Food(units 0 48 12 16 per month Chapter 4 Slide 20
Chapter 4 Slide 20 Engel Curves Food (units per month) 30 4 8 12 10 Income ($ per month) 20 0 16 Engel curves slope upward for normal goods