Economics, 3rd Edition

The Income Expansion Path Where Pizza is an 

Inferior Good

The increase in income has caused the consumer optimum to 

change from point A to point B. The demand for cola has risen 

but the demand for pizza has fallen indicating that pizza is an 

inferior good in this example.

Th I

E

i

FIGURE 5.19

Quantity

of cola

Quantity

of pizza

I

1

BC

1

BC

2

I

2

B

Income expansion path

A

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124  PART 2  SUPPLY AND DEMAND: HOW MARKETS WORK

Where Cola is an Inferior Good 

Figure 5.20 shows a situation again where, as a result of the increase in 

income, the budget constraint shifts from BC

1

 to BC

2

, and the consumer optimum is represented by points 

A and B. In this case the income expansion path shows that as income rises, demand for cola decreases, 

showing that it is an inferior good. The demand for pizza has increased as a result of the increase in income 

indicating that it is a normal good. In this case the substitution effect of the rise in income on cola is greater 

than the income effect.