Essay about Bus as Inferior Good

739 Words Feb 5th, 2011 3 Pages
BUS AS INFERIOR GOOD Assumed that you earn Rp 2,000,000 (after income tax, etc) every month and you work in Sudirman, which is far enough from your house in Grogol. You do not have any car or motorcycle that can reach your office. Either you cannot rent a room or house that is closer to your office due to your income. So the best way to go there is by taking a bus everyday because it is quite impossible to take a taxi cab since your income is very limited. It is better to take a bus which is cheaper than taxi and easy to be found, but it is more time consuming and less convenient compared to taxi cab. When money is constricted, travelling by bus becomes more acceptable, but when money is more abundant that time, more rapid transport is …show more content…
This occurs when a good has more costly substitutes that see an increase in demand as the society's economy improves. As more costly substitutes that offer more pleasure or at least variety become available, the use of the inferior goods diminishes. Normal goods have the positive relationship with income because when income rise (+), the demand for taxi is also rising (+). But inferior goods have negative relationship because when income rise (+), the demand for bus is going down (-). Income is one variable that causes changes in demand together with wealth, price of other goods, taste, and expectation (shift the demand curve to the right if demand is rising or shift to the left if demand is declining). Income relates to household behavior and consumers’ choices. Income, price, and wealth are factors that make the budget constraint. Budget constraint (BC) relates to indifference curve (IC) that reflects consumers’ taste. Indifference curve is a curve that shows the consumption bundles that give the consumer the same level of satisfaction. Budget constraint shows the combination of goods the consumer’s can afford given his income and the price of the goods. BC is a straight downward line while IC is a bowed inward curve.

The graph shows the IC and BC. There are two goods: X and Y. X is the inferior good, which is bus, and Y is the normal good (taxi). The condition here is

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