Solution:

Income demand:

• This type of demand shows the "income effect‟, which explains the impact of changes in the income of the consumer on the demand for a particular product, other things remaining constant.

• The functional relationship between the income of the consumer and the demand for a product can be put as under:

$$D_X=f [y]$$

• Here: Dx = Demand for x commodity,

• f = Functional relation, and

• Y = Income of the consumer.

From income demand point of view, goods can be classified into two categories as explained under:

• a) Superior goods.

• b) Inferior goods.

a) Superior goods:

• In case, of such goods income effect is positive as demand for them increases with increase in income of the consumer and vice-versa.

• This is illustrated in the following table:

b) Inferior goods:

• The demand for such goods declines with increase in the income of the consumer and vice-versa. The income effect is negative in case of such goods.

• Since this was observed, for the first time, by Robert Giffen, hence to give him honour, inferior goods are termed as Giffen goods.

• Only those inferior goods are termed as Giffen goods, on which a consumer spends comparatively a large part of his income.

• Thus, all Giffen goods are inferior goods, but all inferior goods are not Giffen goods.

• The example of Giffen goods is coarse grain and coarse cloth and this is illustrated in the following table: