steak instead, or those with a higher income might buy less cheap wine and more imported beer. When the

income elasticity of demand is negative, we call the good an inferior good.

We introduced the concepts of normal and inferior goods in Demand and Supply. A higher level of income

causes a demand curve to shift to the right for a normal good, which means that the income elasticity of

demand is positive. How far the demand shifts depends on the income elasticity of demand. A higher income

elasticity means a larger shift. However, for an inferior good, that is, when the income elasticity of demand is

negative, a higher level of income would cause the demand curve for that good to shift to the left. Again, how

much it shifts depends on how large the (negative) income elasticity is.

Cross-Price Elasticity of Demand

A change in the price of one good can shift the quantity demanded for another good. If the two goods are
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