I don’t quite understand what you mean by this example. Let’s use the top ramen market as an example. Conventially, an increase in income shifts the demand curve to the right (or increases). So, if an individual has a pay increase from $20,000 a year to $100,000 a year his demand for top ramen should increase a whole lot. However, because top ramen is an inferior good it has the opposite effect and we all know why that is. Now the opposite scenario, say a person who makes $100,000 a year gets demoted to an occupation that pays him $20,000 a year. Usually, his demand for things will shift to the left (decrease) and this will be true for things like jewelery, eating out, cars, etc. However, his demand for top ramen would increase.
I was assuming you would understand why it was an inferior good. Of course, goods aren’t inherently inferior or normal.
Because you assume he doesn’t?
This post doesn’t seem to contradict my post- you don’t seem to disagree that the decision to open business in a certain neighborhood has more to do with entrepreneurial judgment, forecasting and (often) zoning laws.
How can the entrepreneur gage whether there is less demand? Less demand compared to what? Do only people who live in the neighborhood shop at a grocery store? John James claims that he has bought more Top Ramen as his income has increased so there is clearly something that income elasticity misses.
… Where did the entrepreneur acquire the capital and knowledge involved in opening a jewelry store when he was considering only building a “Ross, Dollar Tree [or] 99 cent [store]”?
There’s seems to be many confusions here. Consumeriat, you misunderstand the definition of inferior good. Any good(or service) for which the demand for it decreases as consumer INCOME increases is an inferior good (i.e. frozen/canned foods, tortillas, tacos, public transit). Equivalently, any good for which there is negative income elasticity of demand is inferior.
ThatOldGuy,
Do you think THE demand for Top Ramen is solely determined by JJ’s demand for it?
There really is no reason to continue this discussion. The evidence of this concept is best revealed at simpy examining the diets of people in poverty and wealthy people. Sure, there will be that millionaire who only eats McDonalds and top ramen, but the majority of people wouldn’t.
" Consumeriat, you misunderstand the definition of inferior good. Any good(or service) for which the demand for it decreases as consumer INCOME increases is an inferior good (i.e. frozen/canned foods, tortillas, tacos, public transit). Equivalently, any good for which there is negative income elasticity of demand is inferior."
Isn’t that what I said?
Do you understand the difference between change in demand vs change in quantity demanded?
Is this relevant to any point you or I have made?
The question was directed toward Consumeriat.