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Distinguish between an inferior good and a normal good. Explain the effect of change in income on each, giving suitable examples. |
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Answer» Solution :NORMAL goods are those which have income effect positive i.e. when income of the consumer increases, the DEMAND for the commodity increases and vice-versa. Inferior goods are those which have income effect negative i.e as income of the consumer increases, the demand for the commodity falls and vice-versa.For example, TONED MILK and full cream milk. For a consumer toned milk is an inferior GOOD and full cream milk is a normal good. An increase in income of the consumer will induce the consumer to shift to full cream milk from toned milk. Similarly a fall in income will induce the consumer to consume less of full cream milk and shift to toned milk. |
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