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InterviewSolution
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Explain the chain effect of increase in income of buyers of a commodity on its demand. |
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Answer» ONG>Explanation: The extent to which the demand for a commodity is INFLUENCED by the increase in INCOME depends UPON the nature of the good, that is, whether the good is a normal good or an inferior good.
(i) Normal Good If the good is a normal good, then with increase in income, the demand for good increases. Income ↑ ⇒ Demand ↑
(ii) Inferior Good If the good is an inferior good, then with increase in income the consumer’s demand falls for such goods. Income ↑ ⇒ Demand ↓ |
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