Introduction

In this section, we look at how an increase in income has an impact on the market demand schedule for a normal good.

After you have worked through this section of the learning unit, you should be able to:

  • describe the impact of an increase in income on the demand schedule

With fried chicken pieces as a normal good (in other words, an increase in income increases the demand for fried chicken pieces), we can now see how a change in income will affect the following demand schedule for fried chicken pieces.

At each price, the quantity demanded is higher. At a price of R7, the quantity demanded is 16 pieces instead of 12 pieces; at a price of R6, the quantity demanded is 22 pieces instead of 18 pieces; at a price of R5, the quantity demanded is 28 pieces instead of 24 pieces; and so on.

Increase in income

Price of fried chicken per piece (rand) Quantity of fried chicken pieces demanded (per week) Quantity of fried chicken pieces demanded after an increase in income (per week)
7 12 16
6 18 22
5 24 28
4 30 34
3 36 40
2 42 46
1 48 52

Do the following activity before you proceed:

The following demand schedule indicates what happens to the demand for red meat if the income of households increases:

Price per kg Quantity demanded (kg) before an increase in income Quantity demanded (kg) after an increase in income
R50 100 150
R40 200 250
R30 300 350
R20 400 450
R10 500 550
  1. How many kilograms of red meat are demanded at R40 before the increase in income? _____ kgs
  2. How many kilograms of red meat are demanded at R40 after the increase in income? ______ kgs
  3. How many kilograms of red meat are demanded at R20 before the increase in income? ______ kgs
  4. How many kilograms of red meat are demanded at R20 after the increase in income? ______ kgs
  5. It is only at a price of R30 that more red meat is demanded if income increases. True or false?
  6. An increase in income (increases; decreases) the quantity of red meat demanded at each price.
  7. Red meat is an/a (inferior; normal) good.
Click to see the answer
  1. How many kilograms of red meat are demanded at R40 before the increase in income? 200 kgs
  2. How many kilograms of red meat are demanded at R40 after the increase in income? 250 kgs
  3. How many kilograms of red meat are demanded at R20 before the increase in income? 400 kgs
  4. How many kilograms of red meat are demanded at R20 after the increase in income? 450 kgs
  5. It is only at a price of R30 that more red meat is demanded if income increases.The statement is false. At every price, a higher quantity of red meat is demanded.
  6. An increase in income increases the quantity of red meat demanded at each price.
  7. Red meat is an/a (inferior; normal) good. It is a normal good because an increase in income increases the demand for it.