DEMAND(part 3)

RECALL: INCOME CHANGESP

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.

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

NORMAL GOODSGoods 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

INFERIOR GOODSGoods 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.

NORMAL VS. INFERIORClassifying 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 is an inferior good because I’m rich and I want to buy nicer cars.

This car is a normal

good because I now have the

money to buy a car for the first

time!

PRACTICE PROBLEM #5P

(Insta

nt S

pagh

etti)

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.

PRACTICE PROBLEM #6P

(eat

ing o

ut)

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.

Complete “Demand Worksheet #3” NOW

CLASSROOM POSTERSMake 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