ECONOMICS (CBSE/UGC NET)

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ECONOMICS

ELASTICITY OF DEMAND

Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
If the income elasticity of market demand is negative, most consumers view the good as:
A
a luxury good
B
having many imperfect substitutes.
C
an inferior good.
D
) a normal good.
Explanation: 

Detailed explanation-1: -Inferior goods have a negative income elasticity of demand; as consumers’ income rises, they buy fewer inferior goods. A typical example of such a type of product is margarine, which is much cheaper than butter.

Detailed explanation-2: -If the income elasticity of demand is negative, it is an inferior good. If the income elasticity of demand is positive, it is a normal good. If the income elasticity of demand is greater than one, it is a luxury good.

Detailed explanation-3: -A negative income elasticity of demand is associated with inferior goods; an increase in income will lead to a fall in the quantity demanded. A positive income elasticity of demand is associated with normal goods; an increase in income will lead to a rise in quantity demanded.

Detailed explanation-4: -Income elasticity of demand for inferior goods is negative.

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