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Moreover,aspriceofbananasdrops, consumer’s purchasingpowerincreases, which further increases demand for bananas (and mangoes). This is the income effect of a price change, resulting in further increase in demand for bananas. Law of Demand: Law of Demand states that other things being equal, there is a negative relation between demand for a commodity and its price. In other words, when price of the commodity increases, demand for it falls and when price of the commodity decreases, demand for it rises, other factors remaining the same. Linear Demand A linear demand curve can be written as a d(p) = a – bp; 0≤ p ≤ b a = 0; p > b (2.13) where a is the vertical intercept, –b is the slope of the demand curve. At price 0, the demand is a, and at price a equal to , the demand is 0. The Linear Demand Curve. The diagram depicts b thelineardemandcurvegivenbyequation2.13. slope of the demand curve measures the rate at which demand changes with respect to its price. For a unit increase in the price of the good, the demand falls by b units. Figure 2.15 depicts a linear demand curve. 2.4.3 Normal and Inferior Goods The demand function is a relation between the consumer’s demand for a good and its price when other things are given. Instead of studying the relation between the demand for a good and its price, we can also study the relation 24 r i between the consumer’s demand for the good and the income of the consumer. c o The quantity of a good that the d o consumer demands can increase or A rise in the purchasing power t e decrease with the rise in income (income) of the consumer can I c depending on the nature of the good. sometimes induce the consumer to i reduce the consumption of a good. M For most goods, the quantity that a In such a case, the substitution consumer chooses, increases as the effect and the income effect will work consumer’s income increases and decreases as the consumer’s income in opposite directions. The demand decreases. Such goods are called for such a good can be inversely or positively related to its price normal goods. Thus, a consumer’s depending on the relative strengths demand for a normal good moves in the of these two opposing effects. If the same direction as the income of the substitution effect is stronger than consumer. However, there are some the income effect, the demand for the good and the price of the good would goods the demands for which move in still be inversely related. However, the opposite direction of the income of if the income effect is stronger than the consumer. Such goods are called inferior goods. As the income of the the substitution effect, the demand consumer increases, the demand for an for the good would be positively related to its price. Such a good is inferior good falls, and as the income called a Giffen good. decreases, the demand for an inferior Reprint 2026-27