Questions and activities
An increase in income always leads to a rise in demand for goods. Defend or refute, giving reasons for the same.
This statement is a partial truth and needs to be refuted in its absolute form. While it is generally true that a rise in income increases purchasing power and allows consumers to buy more or choose higher-quality products, income does not always lead to a rise in demand for every good.
For most goods — called normal goods — demand rises with income. For example, when household income increases, people tend to buy more branded clothing or better-quality food.
However, for some goods — called inferior goods — demand actually falls as income rises, because consumers switch to better alternatives. For example, when income rises, a family that previously ate coarse millet may shift to rice or wheat, reducing demand for millet.
Additionally, even for normal goods, the increase in demand depends on other factors such as tastes, preferences, and future price expectations. Srivalli's fondness for mangoes may keep her demand for mangoes high regardless of a price change, but a change in taste could offset the income effect.
Answer: Refuted. While higher income generally raises demand for normal goods, demand for inferior goods falls as people switch to better alternatives. Income is one determinant of demand, but taste, preferences, and expectations also matter, so an income rise does not always raise demand for all goods.