Income

How changes in income affect demand is more complex. For most products, a rise in income causes an increase in demand. Consumers typically buy more steaks, furniture, and computers as their incomes increase. Conversely, the demand for such products declines as income falls. Products for which demand varies directly with money income are called normal goods.

Although most products are normal goods, there are some exceptions. As incomes increase beyond some point, the demand for used clothing, retread tires, and third-hand automobiles may decrease, because the higher incomes enable consumers to buy new versions of those products. Rising incomes may also decrease the demand for soy-enhanced hamburgers. Similarly, rising incomes may cause the demand for charcoal grills to decline as wealthier consumers switch to gas grills. Goods for which demand varies inversely with money income are called inferior goods.

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