Microeconomics,, 16th Canadian Edition

(Sean Pound) #1

rise in income was shared to some extent by almost all citizens.
As they found their incomes increasing, they increased their
demands for most products. In the first part of that century,
however, the demands for some products (such as food and
basic clothing) were income inelastic, whereas the demands for
durable goods (such as cars and TVs) were income elastic. As a
result, the demand for food and clothing grew less rapidly than
did the demand for cars and TVs. Later in the century, as
incomes rose still further, the income elasticity of demand for
manufactured durables fell while that for services (such as
restaurant meals and entertainment) increased. During this
period the ongoing income growth led the demand for services
to grow more rapidly than the demand for durable goods.


In some developing countries, where per capita incomes today
are close to those of the Western nations at the beginning of
the twentieth century, it is the demands for durable
manufactured goods that are increasing most rapidly as
income rises. In future years (assuming that the current growth
of income continues), these same countries will likely
experience the same shift in demand toward services that was
experienced by the Western countries in the last part of the
twentieth century.


The uneven impact of the growth of income on the demands for
different products has important effects on the pattern of
employment. For example, in Western countries, employment in
agriculture fell during the first part of the twentieth century,

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