ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -In case of normal goods, income effect is positive, while in case of inferior goods, it is negative.

Detailed explanation-2: -Inferior goods are associated with a negative income elasticity, while normal goods are related to a positive income elasticity.

Detailed explanation-3: -It increases in demand as consumers’ incomes rise. In other words, when a person’s wages increase, they buy more normal goods, and when a person’s wages decrease, they buy fewer normal goods. A normal good has a positive elastic relationship with income and demand.

Detailed explanation-4: -The income effect is the change in the consumption of goods based on income. This means consumers will generally spend more if they experience an increase in income. They may spend less if their income drops. The effect doesn’t dictate the kinds of goods consumers will buy.

Detailed explanation-5: -Thus, a price effect is positive in case of normal goods. There is an inverse relationship between price and quantity demanded. It is negative in case of inferior goods (including Giffen goods) where we find a direct relationship between price and quantity demanded.