As consumers’ income rises, the demand for branded

Solution

Normal goods are products for which demand has a direct relationship with consumer income. When income rises, the quantity demanded for these goods also increases. These goods have a positive income elasticity of demand i.e. 𝑌𝐸𝐷 > 0. This confirms that as consumers earn more, they allocate more funds toward these items. Examples include branded clothing, restaurant meals, and higher-quality food items, as these are seen as more desirable than their generic or basic alternatives.  Note - Luxury goods (also known as superior goods) are a specific type of normal good defined by a high responsiveness to changes in income. The income elasticity of demand (YED) for luxury goods is also positive but greater than 1. This means there will be more-than-proportionate increase in demand for these when income rises. The other normal goods are necessity goods. Here the income elasticity is inelastic 0 < YED < 1 i.e. the demand increases slower than the income growth. Examples - Basic groceries, water, electricity Inferior goods have a negative income elasticity. Demand for these goods (like instant noodles or public transport) actually decreases as income rises because consumers switch to better quality options. Giffen goods are a specific type of inferior good where demand increases as the price rises due to a lack of substitutes. They are defined by price-demand relationships rather than just income increases.