Income Changes

We usually don’t like change, but hey...sometimes it’s not so bad. Income changes = when income increases or decreases.

Income changes result in the “income effect,” which is how changes in income result in changes in buying behavior, and in the demand for goods.

For instance, a positive income change might mean we just increased our disposable income. With more fun money in our pockets, we’re likely to spend more money on “normal” goods...things like coffee, clothes, and luxury goods. With normal goods, demand for them goes up when income changes are positive. It’s normal to buy more of them when you can.

When income changes for the better, we’re also more likely to buy less inferior goods. With inferior goods, demand for them goes down with positive income changes. You might upgrade your bus commute to a car commute with higher income, which would make the bus an inferior good. Inferior goods become a thing of the past with enough positive income changes.