Question

Consider the market for Blackberry Cell Phones.

Suppose household income decreases.
Show how this affects the demand for Blackberries by drawing a new demand curve. Assume Blackberries are a normal good.

According to the graph, when income decreases, the demand for Blackberry Cell Phones ______.

Instead, consider an inferior good. If income decreases, then the demand for an inferior good _____.

Answer 1

Decreased household income leads to lower demand for Blackberry Cell Phones, a normal good, shifting the demand curve leftward. For an inferior good, demand would increase, shifting the demand curve rightward.

Step-by-step explanation:

When household income decreases and we assume that Blackberry Cell Phones are a normal good, the demand for Blackberries would decrease. Graphically, this is represented by a leftward shift of the demand curve. If Blackberry Cell Phones were an inferior good, a decrease in income would result in a(n) increase in demand, which would be shown as a rightward shift in the demand curve. This relationship is based on the income effect, where normal goods see a rise in demand as income increases, whereas demand for inferior goods rises when income decreases.