Distinguish between the effect of an increase in income and an increase in the price of a good on the demand for the good.

The demand of an individual consumer indicates the various quantities of a good (or service) the consumer is willing and able to buy at different possible prices during a particular time period, ceteris paribus (all factors remaining constant)According to the law of demand, there is a negative causal relationship between the priceof a good and its quantity demanded: as the price of the good increases, quantity demanded falls; as the price falls, quantity demanded increases. For example, when shoes go on sale, they are sold at a lower price and therefore more people are more willing and able to buy them. This will result in higher demand for the product and a downwards movement on the demand curve (from P1 to P2, and D1 to D2)Instead, a change in other non-price factors, such as change in income, will result in a shift of the demand curve. A rightward shift of the demand curve indicates that more is demanded for a given price (increase in demand); a leftward shift of the demand curve indicates that less is demanded for a given price (decrease in demand). Most goods are normal goods, which means an increase in income will increase its demand. Therefore, an increase in income leads to a rightward shift in the demand curve, and a decrease in income leads to a leftward shift (from D1 to D2). For example, organic vegetables are an example of normal good. The higher someone’s income is, the higher the demand for such products will be. Instead, there are some goods where the demand falls as consumer income increases. These are referred to as inferior goods, where the demand for the good varies inversely with income. For example, an increase in income will lead to a decrease in demand for canned goods, as people will opt for better quality food (such as organic foods) (from D2 to D1).In conclusion – An increase in the price of a product will cause a movement along the demand curve while an increase in income will cause a shift of the demand curve to the right.