The Ability to Buy

Consider this illustration of a normal good. When Duncan Thurly first reached adulthood many years ago, he eked out a living working at minimum wage jobs. His income was quite limited in those early lean years. When it came to demanding housing, the best he could afford was a studio apartment with a scant 300 square feet of living space.

However, once Duncan worked his way up the occupational ladder and his income increased, he was inclined to demand more housing. He recently moved into a sprawling suburban residence with over 3000 square feet of living space. His demand for living space increased with his additional income and with his increased ability to buy. For most people, Like Duncan, housing is a normal good.

Of course, should Duncan have a decline in his income, such as what might happen if he is laid off from his high-paying job due to philosophical differences over the ownership of company office supplies, then he would be inclined to purchase less housing, perhaps a duplex with only 1000 square feet of living space.

Shifting the Demand Curve

Normal Good

Now, consider how changes in buyers' income shift the demand curve for this normal good.

• Increase in Income: An increase in buyers' income causes an increase in demand and a rightward shift of the demand curve for living space. Click the [Income Increase] button to demonstrate.


• Decrease in Income: A decrease in buyers' income causes a decrease in demand and a leftward shift of the demand curve for living space. Click the [Income Decrease] button to demonstrate.

An Inferior Alternative

A Little Luxury

For example, a 10 percent increase in income results in a greater than 10 percent increase in the demand for a superior good. Alternatively, a 10 percent decrease in income results in a greater than 10 percent decrease in the demand.

Because the demand for superior goods tends to increase A LOT as buyers obtain extra income, they are also more commonly termed luxury goods.

Depends on the Situation

Consider a good such as cable television.

• Superior Good: A buyer with limited income, such as someone working at a minimum wage job, might view cable television as superior good. Demand for cable television is likely to increase substantially with an increase in income, that is, from no cable television to basic service.


• Normal Good: A buyer residing in the middle of the income spectrum probably views cable television as a normal good. An increase in income likely triggers a proportional increase in cable television services, such as moving from basic cable to digital cable.


• Inferior Good: A buyer with a great deal of income, such as the truly wealthy, might view cable television as an inferior good. An increase in income probably induces a decline in cable television services, as the buyer opts for live entertainment, satellite television, and other more expensive but more preferred alternatives.

Income Elasticity