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8 S ^ i £ a. (a) j(b) 1(c) 1(d) KTT^ Income Phase (d) Increases in income reduce the demand for butter—which thus becomes an "inferior good" with a negative income elasticity. Not all goods necessarily become "inferior" at high income levels. The graph is a general one and can apply to many commodities. g. g.

When talking about the demand of a whole community for a commodity—such as the demand for milk in the UK—we use the term market demand. If a household has a demand for eggs and buys, say, seven, the demand does not then evaporate, unless its tastes change and it "goes off" eggs. Demand is a flow. Eggs are purchased time after time, and if we say a household's demand for eggs at a given price is 7 eggs, we must add per day, or whatever the relevant time period is. Factors Affecting Demand If we continue with our example using eggs we can show that there are several factors affecting a household's demand for them.

7 Below are some of the combinations of amounts of two commodities, X and Y, which correspond to points on three indifference curves for a consumer. 5 12 10 5 4 I2 Y 60 40 30 24 20 15 10 8 X 10 15 20 25 45 55 70 h Y 60 45 36 30 18 15 12 (i) Draw these indifference curves (we assume that they are smooth). (ii) Calculate the Marginal Rate of Substitution on Ij between X5 and X10. X20) MRS Explaining the Behaviour of Individuals 37 (iii) Draw in the consumer's iso-expenditure line (budget line) for each of the income and price levels quoted below, and determine the quantities of the two commodities he purchases in each of these situations.