ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Inferior Good
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Normal Good
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Necessity
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None of the above
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Detailed explanation-1: -1. Income Elasticity of Demand for a Normal Good. A normal good has an Income Elasticity of Demand > 0. This means the demand for a normal good will increase as the consumer’s income increases.
Detailed explanation-2: -If YED is more than one, it implies income elastic demand. This means that a change in income will result in a proportionally larger change in quantity demand.
Detailed explanation-3: -Inferior goods The negative sign means that the good is inferior, and, because the coefficient is less than one, demand for the good does not respond significantly to a change in income. This indicates that the good is not particularly inferior compared with a good which has a YED of > (-)1.
Detailed explanation-4: -If the income elasticity of demand is greater than 1, the good or service is considered a luxury and income elastic. A good or service that has an income elasticity of demand between zero and 1 is considered a normal good and income inelastic.