Income Increases Make Demand Curve More Price Inelastic, Limiting Macroeconomic Impact
The article explains how changes in income affect consumer demand differently than commonly thought. When income increases, the demand curve doesn't shift but rotates around a point. This makes the demand curve less sensitive to price changes. The Law of Demand always holds true, with any apparent violations linked to changes in the optimal point of demand. As income rises, demand converges to a specific level, suggesting that boosting consumer income may not have as big an impact as expected. Models using specific preferences should consider how demand changes with income. The researchers also present a model where demand is linear in price.