income elasticity because an increase in income actually leads to a
reduction in quantity demanded. An example of an inferior good for some
consumers might be ground beef or packages of instant noodles; as
consumers’ incomes rise, they reduce their demand for these products
and consume more higher-quality items.
Note, however, that it is generally easier to find examples of inferior
goods for an individual than it is for the market as a whole. With any
given individual, it is relatively easy to determine which products they
consume less of as their income rises. Once we aggregate all consumers
into a market, however, and the unusual behaviour of some consumers
offsets those of others, we tend to find that the demand for most products
is normal. Increases in average income lead to increases in the market
demand for most products.
Historically, as a nation’s income grows, demand for various goods and
services changes depending on the associated income elasticities. See
Lessons from History 4-1 for a brief discussion of this point.
Lessons From History 4-1
Economic Development and Income Elasticities
How the demand for goods and services reacts to changes in
income has important economic effects. In most Western
countries during the twentieth century, economic growth
caused the level of income to double every 20 to 30 years. This