If the income increases, huseholds have more purchasing power hence demand more goods and services thereby shifting the demand curve to the right and if income decreases, huseholds reduce the demand for goods thus shifting the curve downwards. Sme case applies to increase or decrease in the wealth of firms and households. Hwever, i depends on the type of good or service. Fr an inferior good, a increase in income or wealth leads to decrease in quantity demanded of the good but for normal goods, a increase in wealth leads to more demand for the good (Beggs, 2011).
Mnkiw (2011) notes that a change in demand as a result of change in taste and preference or price of related products depends on the type of goods affected. For example, i a consumer changes his/her preference from Pepsi to coke which are substitute goods, te demand for coke increases while demand for Pepsi decreases. Fr substitute goods, a increase in price of one good leads to an increase in quantity demanded of the other good. Fr example, i coke increases relative to the price of Pepsi, cnsumers shift demand from coke to Pepsi which serves the same purpose.
Fr complimentary goods, a increase in price of one good leads to decrease in quantity demanded of the other good. Mcroeconomics deals with aggregate demand and aggregate supply in the economy. Agregate demand comprises of; cnsumption, ivestment, gvernment expenditure, eports and imports or the real national output (GDP). A Kyer and Maggs (1994) puts it, mcroeconomics is not concerned with price elasticity, mrginal costs and revenues as well individual but rather government policies and the behaviour of the economy as a whole.
Te aggregate demand in the economy is not affected by price but rather other factors such as; epectations of households, icome, walth, iterest rates, echange rates among others. Te supply side is affected by profit expectations of producers, poduction costs, wather, txes, ad number of firms among others (Cliffsnotes, 2011). I macroeconomics, tere is no substitute, cmplementary, iferior or normal goods categories as all goods are added into one basket. Te price level in economy is by aggregate demand and aggregate supply.
Acording to Tucker (2008), ay changes in the components of the GDP leads to a shift in aggregate demand curve. Fr example. ..
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