Year 11 Economics Demand - Luxury and Inferior Goods

Explain why increased income can increase demand

A consumer can afford (is more "able") to purchase more of the good or service than before, therefore demand increases.

Explain why reduced income can decrease demand

A consumer cannot afford (is less "able") to purchase as much of the good or service as before, therefore demand decreases.

What happens if disposable income decreases?

As disposable income decreases, consumers demand for Goods and Services decreases, as there is less income to spend.

What happens if disposable income increases?

As disposable income increases, consumers demand for Goods and Services increases, as there is more income to spend.

What way does the curve shift if there is a decrease in demand?

Left

When do inferior goods tend to decrease in demand

Less inferior goods are purchased when income is high/increasing.

What is a luxury good?

Luxury goods are goods that are of high quality or have superior features. For Example Coca-cola or an iphone.

When do inferior goods tend to increase in demand?

More inferior goods are purchased when income is low/decreasing.

What way does the curve shift if there is a increase in demand?

Right

Explain what the term Disposable Income means?

Is the amount of income consumers have to spend after paying tax to the government. As income tax rates increase, disposable income decreases as more tax is paid to the Government. Consumers have less to spend on Goods and services. Less Disposable Income = Decrease in Demand

Fully explain what happens to the demand for inferior goods when income decreases? (include why does this happens)

As income decreases the demand for inferior goods will increase. This is because the consumer can no longer afford to purchase luxury substitute goods and therefore will purchase inferior goods instead. There will be a decrease in demand for luxury goods

Fully explain what happens to luxury goods when income decreases?

As income decreases the demand for luxury goods will decrease. This is because the consumer cannot afford to purchase luxury goods as they could before. Demand for inferior goods will rise as consumers switch from luxury goods as they cannot now afford them.

Fully explain what happens to demand for inferior goods when income increases? (include why this happens)

As income increases the demand for inferior goods will decrease. This is because the consumer can afford to purchase the luxury "substitute" goods. Demand for Luxury goods will increase.

Fully explain what happens to luxury goods when income increases?

As income increases the demand for luxury goods will increase. This is because the consumer can afford to purchase luxury goods. Demand for inferior goods will fall as consumers switch to luxury goods as they can now afford them.

What happens with a reduction of Income Tax?

Income tax is the amount of your income you pay to the government. As the income tax rates decrease, so will the amount of income tax you pay to the Government. Disposable income will rise and therefore your demand will increase (a tax cut is the same as more income to a consumer). More Income = Increase in Demand

What is an inferior good?

Inferior goods are goods that are of low quality or of limited use. For example: Budget cola or old Nokia phone.

How can disposable income increase?

Tax cuts, pay rises, decrease in savings, benefits from government, gifts or lotto winnings,