Effects of income levels on demand

• Effect of rising incomes

  • luxury goods - demand increases
  • essential goods - demand stays the same (bread, milk)
  • inferior goods - demand falls (canned meat, cheap clothing)
• Effect of falling incomes

  • luxury goods - demand falls
  • essential goods - demand remains the same
  • inferior goods - demand rises
• How a business would respond to falling incomes

  • reduce levels of output
  • lower prices to try and boost demand
  • introduce cost saving strategies
  • introduce more marketing and promotions to try and boost demand
  • concentrate on promoting cheaper ranges