M

Q2 + Qi countercyclical

Inferior goods whose demand falls with rising income, and rises with falling income noncyclical normal goods

Products for which demand is relatively unaffected by changing income cyclical normal goods

Products for which demand is strongly affected by changing

Arc income elasticity provides a measure of the average responsiveness of demand for a given product to a relative change in income over the range from I1 to I2.

In the case of inferior goods, individual demand actually rises during an economic downturn. As workers get laid off from their jobs, for example, they might tend to substitute potatoes for meat, hamburgers for steak, bus rides for automobile trips, and so on. As a result, demand for potatoes, hamburgers, bus rides, and other inferior goods can actually rise during recessions. Their demand is countercyclical.

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