A Recession Lifts an Inferior Good
Falling income raises demand for an inferior good, so price and quantity both rise.
A Recession Lifts an Inferior Good
Supply and DemandFalling income raises demand for an inferior good, so price and quantity both rise.
Equilibrium at Quantity 57, Price ($) 44
Start in equilibrium
The market for supermarket own-brand pasta begins in equilibrium.
Now try it yourself: shift the curves in a graded FRQ drill, or open this graph in the free sandbox.
A Recession Lifts an Inferior Good, step by step
- 1
Start in equilibrium
The market for supermarket own-brand pasta begins in equilibrium.
- 2
Incomes fall
A recession cuts household incomes. For an INFERIOR good, lower income means people buy MORE of it, trading down from branded products. Demand shifts right.
- 3
Price and quantity both rise
The extra demand creates a shortage at the old price, pushing price up, and the market clears at a higher price and a larger quantity.
- 4
Why the direction feels wrong
Every other demand question in the course has falling income shifting demand LEFT, and for a normal good that is correct. Inferior goods reverse it, and an exam will not always tell you which kind you are looking at: decide from the good itself. Own-brand food, bus travel and second-hand clothing are the usual examples.
Where it ends up
For an inferior good, falling income shifts demand RIGHT, raising both price and quantity.
Now draw it yourself
Same graph, graded on whether you move the right curve and leave the rest alone.
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