Final answer:
When your income goes up and you demand fewer potatoes, it indicates that for you, potatoes are an inferior good. Contrastingly, if your neighbour's demand for potatoes rises with his income, for him potatoes are likely a normal good. These terms reflect subjective economic responses to changes in income.
Step-by-step explanation:
If your income goes up and your quantity demanded of potatoes goes down, it suggests that potatoes are an inferior good for you. This term refers to a type of good for which demand decreases as income increases, meaning you might buy less of it because you can now afford to purchase more desirable substitutes.
Conversely, if your neighbour's income increases and his quantity demanded for potatoes also goes up, it implies that for your neighbour, potatoes could be a normal good, one whose demand increases as income increases because it remains a preferred choice. It's important to note that the classification of good as 'normal' or 'inferior' can be subjective and based on individual preferences and perceptions of quality or desirability.
Moreover, when discussing how the price of a good affects demand, we must consider the ceteris paribus assumption. This principle suggests that if the price rises and all other factors remain constant, the quantity demanded will typically fall. However, an increase in income can offset this effect, allowing consumers to afford the same amount or even more of the good, despite the price increase.