In a recession incomes tend to fall; what effect might this have on the demand for scooters?
a. Lower income would cause movement along the demand curve
b. Lower incomes would shift demand in, to the left
c. Lower incomes would shift demand out, to the right
d. Lower incomes would not affect demand
The correct answer and explanation is:
The correct answer is b. Lower incomes would shift demand in, to the left.
Explanation: In a recession, incomes typically fall as businesses reduce hiring or lay off workers, and people may have less disposable income. When people’s incomes decrease, they often adjust their consumption patterns. Goods that are considered luxuries or non-essential, such as scooters, may see a reduction in demand because people prioritize necessities like food, housing, and utilities.
The relationship between income and demand for goods is often described by the income effect. When income falls, people can afford fewer goods and services. For normal goods, a decrease in income leads to a leftward shift of the demand curve, meaning that at every price level, the quantity demanded will be lower.
In the case of scooters, a decline in income will likely lead to fewer people purchasing them, as they are more likely to hold off on discretionary spending or opt for cheaper alternatives. As a result, the demand curve for scooters shifts to the left, indicating a decrease in demand.
This is a general effect seen with normal goods. For inferior goods, however, lower incomes may cause demand to increase, as people may substitute more expensive goods with cheaper alternatives. However, scooters are typically considered a normal good, so in this case, a reduction in income would lead to a decrease in demand, shifting the demand curve to the left.