Demand Curves and Income Effects for Different Products

Demand Curves

• Axes:
  • Vertical axis represents price
  • Horizontal axis represents quantity
• Law of Demand:
  • Higher price = lower quantity demanded
  • Lower price = higher quantity demanded

Demand Curve for Laptops

• Demand curve slopes from top left to bottom right
• Not necessarily a straight line; can be a curve
• Current Demand: Demand curve without shifts

Demand Curve for the Cheapest Car

• Similar slope as laptop demand curve
• Follows the law of demand

Income Effect on Demand

Laptops

• Income Increase:
  • More disposable income = higher quantity demanded at any price
  • Demand curve shifts to the right
• Income Decrease:
  • Less disposable income = lower quantity demanded
  • Demand curve shifts to the left
• Classification: Normal good
  • Income and demand move in the same direction

Cheapest Car

• Income Increase:
  • Higher income may lead to preference for better cars
  • Demand for the cheapest car decreases
  • Demand curve shifts to the left
• Income Decrease:
  • People trade down to more affordable cars
  • Demand for the cheapest car increases
  • Demand curve shifts to the right
• Classification: Inferior good
  • Income and demand move in opposite directions

Key Concepts

• Normal Goods:

  • Demand increases with income
  • Demand decreases with a drop in income
  • Example: Laptops

• Inferior Goods:

  • Demand decreases with income increase
  • Demand increases with income decrease
  • Example: Cheapest car

Summary

• Income changes impact demand differently for normal and inferior goods.
• Understanding the type of good is crucial for predicting demand shifts due to income changes.