Question

Since the average number of children per family has declined in the face of rising family incomes over the last 200 years, then children must be an inferior good. True or false? Demonstrate your answer graphically.

Answer 1

If we consider this as the quantity demanded of children we can assert that increase in the income of the family results in a decrease in the demand for children so that families with higher income have fewer children. In that sense the income effect of the demand for children is negative and so children must be an inferior good. This however, is true when all other factors affecting the demand for children must remain unchanged

Below as the income increases, budget line shifts from red to green, optimum bundle shifts from A to B with fewer children at y2 then y1.