What is relationship between income and demand?
Relationship between income and demand show positive and negative impact over consumer buying capabilities of goods and services. Consumer's can only demand for commodity on the basis of what is relationship between income and demand.
Relationship between income and demand is directly proportional, means as an income of consumer increases then they started more demand of better quality and quantity of goods and services.
Generally when individuals income increases then they have more money for buying more quantity of goods and using services for living better life.
Income of an consumers decide whether they going to demand more goods and services or not.
Consumer make plan for buying any product and services by keeping in mind his income power. Mostly cases consumer earning increases then demand for additional products and services will also increase. Financial earning of consumer decreases then demand for product conjointly comes decreases.
Relationship between income and demand inside market directly linked with price and demand relationship. Lets understand income and demand relationship role in price and demand relationship.
Lets take help of an example suppose consumers income increased which means after fulfilment of consumer and his family requirements have now surplus money in his pocket which can be used for purchasing of new goods and services. Income increase of consumers also increases purchasing power.
Goods and services which was out of reach earlier for particular consumer due to his less income but after increase in income that new goods and services came reached of that consumers. Now consumers after increased income go inside market and start demanding for more quantity of goods and services. This huge demand for any goods and services will increase automatically will increase demand for goods and services.
As demand for goods and services increased due to increase in consumers income results in decrease in price of goods and services. Relationship between price and demand shows negative relationship with eachother dependent on demand of goods and services inside market.
Economic term used like income, demand and price of goods and services are interlinked and shows positive or negative relationship according to present economic activities inside market.
Is the relationship between income and demand is positive and negative
Economic studies of relationship between income and demand explained, income and demand relationship shows both positive and negative.
Positive relationship between income and demand shown in case of nominal goods. Similarly in situation of inferior goods, relationship between income and demand shown negative.
Negative income elasticity of demand results in inferior goods situation. On other hand positive relationship between income and demand in nominal goods results in positive elasticity of demand.
There are two types of relationship between income and demand shown in consumer economics.
(1) Normal Goods
(2) Inferior Goods
Relationship between income and demand in case of normal goods
Normal goods case income and demand are closely related to eachother. Income and demand in case normal goods directly related. Directly related here meaning, when income of consumer's increases in case of normal goods then demand increases for products and services inside market also increases. And if income of consumers decreases in case of normal goods then demand for products and services also decreased.
Correlation between income and demand in case of normal goods is positive or negative totally dependent on income of consumers. Demand will rise when income increase and demand fall if income decreases of consumer. Here question arise what are product comes under normal goods.
Correlation between income and demand in case of normal goods is positive when income of consumers increases at same rate and demand for product also increased at same rate.
A fall in income of the consumer in case of normal goods will cause negative correlation shown when income of consumers decreases and consumer demand for new product decreased.
The relationship between income and demand for inferior goods
Inferior good case income and demand are inversely related. In the case of inferior goods income decreases then demand increases of product. Demand decreases for product if consumer income increases.