18. How does a change in income affect demand for inferior goods?

A change in income can have a significant impact on the demand for inferior goods. Here's how it works:

1. Inferior goods: First, let's understand what inferior goods are. Inferior goods are products or services that people consume less of as their income increases. These goods are considered lower quality or less desirable compared to other alternatives.

2. Income increase: When a person's income increases, they generally have more purchasing power. As a result, they tend to shift their consumption towards higher quality or more desirable goods. This means they are likely to reduce their demand for inferior goods.

3. Substitution effect: The change in income leads to a substitution effect. As people have more money, they can afford to buy better alternatives to inferior goods. For example, if someone's income increases, they may choose to buy a higher quality brand of clothing instead of a cheaper, inferior brand.

4. Decreased demand: Due to the substitution effect, the demand for inferior goods decreases as income increases. This is because people have more options and can afford to buy goods that are considered superior or more desirable.

5. Income elasticity of demand: The responsiveness of demand for inferior goods to changes in income is measured by the income elasticity of demand. In the case of inferior goods, the income elasticity of demand is negative, indicating that as income increases, the demand for these goods decreases.

In summary, a change in income has a negative impact on the demand for inferior goods. As people's income increases, they tend to shift their consumption towards higher quality or more desirable goods, leading to a decrease in demand for inferior goods.