What will be the effect on demand curve if (with diagram)-
(a)there is a rise in the income of consumer
(b)there is rise in the price of substitute goods

Dear Student,

(a.) In case of a normal good:
There is a direct relationship between income of the consumer and demand for normal goods, i.e., if income of the consumer increases, his demand for normal goods increase.



D1 is the original demand curve of the normal goods. D2 is the demand curve of normal goods, formed after the increase in the income of the consumer.


In case of an inferior good:
There is an inverse relationship between income of the consumer and demand for inferior goods, i.e., if income of the consumer increases, his demand for inferior goods decrease.



D1 is the original demand curve of the inferior goods. D2 is the demand curve of inferior goods, formed after the increase in the income of the consumer.

(b.) Substitute goods are those goods which can be used in place of one another. There is a direct relationship between the price of one substitute good and quantity of the other, i.e., the demand for a good increases with an increase in price of its substitute good.

Let us suppose there are 2 goods, A & B, which are substitutes of each other and let's say that the price of Good-B has increased. the following will be the effect of the rise in price of good-B on the demand of good-A.



D1 is the original demand curve of good-A. D2 is the demand curve of good-A formed after the increase in the price of good-B.

Regards