C.p.t >>economics>>demand

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

13 October 2013 "goods can be considered inferior goods in economics if increase in disposable income of consumer causes less than proportionate change in demand"
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how?

Nikhil Kaushik

Nikhil Kaushik (Expert)
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13 October 2013 Hi.

Take for an example,

A is a CA article today earning Rs 2,000 a month. To commute, he would more or less use Bus/ share cab/ train.

So lets say @ Rs 2,000 pm disposable income, he spends Rs 300 on travel through the above modes of transportation.

Needless to say commuting in bus or train is highly irritating, you have to wait for bus to come etc.

Now he becomes CA and earns Rs 50,000 pm.
It is very much possible that he would now use more of cool cab etc instead of bus or train. And even if he continues to use bus or train, he still spends the same money.

So, where the increase in income is 25 times, the demand for bus, share cab or train would either remain same or fall.

Such goods are referred to us inferior goods. This category normally involves essential goods or utilities.

Cool cab or owning his own car would be superior goods. If his income reaches Rs 2 lakh a month, he may by a Sedan car, further reducing the demand for bus or train..

I home u understood!!

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