2. RECALL: INCOME CHANGES
P
QD
Max just started a new job
with a higher salary than
his old one. How will this
affect his overall demand
for goods and services?
!
Draw a new demand
curve labeled “D2” to
represent this situation.
3. INCOME SHIFTS:
NOT ALWAYS TO THE RIGHT!
If Max gets a raise, it is true that his overall
demand for goods will increase. However,
there are certain goods that Max will be
more or less likely to buy if he has more
money.
• Normal Goods
vs.
• Inferior Goods
4. NORMAL GOODS
Goods that experience an increase in
demand as the income of an individual rises.
They can be luxury goods like a
fancy car or a big screen T.V.,
or they can be daily goods that
people prefer over less appealing
substitutes
5. INFERIOR GOODS
Goods that experience an decrease in
demand as the income of an individual rises.
These are things that, if people had
more money, they would prefer not
to buy. Some examples of inferior
goods are public transportation,
instant food, and things without a
name brand.
6. NORMAL VS. INFERIOR
Classifying a good as normal or inferior is not an
intrinsic characteristic of a good itself,
but depends on the situation of the buyer.
A particular good might be inferior for one
buyer and normal for another.
This car
This car
is an
is a normal
inferior good
good because I
because I’m rich
now have the
and I want to
money to buy a
buy nicer cars.
car for the first
time!
7. PRACTICE PROBLEM #5
P (Instant Spaghetti)
QD (Instant Spaghetti)
Max just graduated from
college and got a good-paying
job for the first time. How will
this affect his demand for
Instant Spaghetti?
!
!
!
!
!
Draw a new demand curve
labeled “D2” to represent this
situation.
8. PRACTICE PROBLEM #6
P (eating out)
QD (eating out)
Max just graduated from
college and got a good-paying
job for the first time. How will
this affect his demand for eating
out at Italian Restaurants?
!
!
!
!
!
Draw a new demand curve
labeled “D2” to represent this
situation.
10. CLASSROOM POSTERS
Make a poster. Create a scenario (like the ones in our practice
problems and worksheets) and illustrate your scenario with a demand
graph. Show a “D1” curve (before), and a “D2” curve (after).
Group 1: change in income (normal good)
Group 2: change in income (inferior good)
Group 3: change in preferences
Group 4: change in future expectations
Group 5: change in the price of a substitute good
Group 6: change in the price of a complimentary good
