ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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It is a normal good
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It is an inferior good.
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It has many complements.
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It has many substitutes.
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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: -2. Negative income elasticity of demand. It refers to a condition in which demand for a commodity decreases with a rise in consumer income and increases with a fall in consumer income. Inferior goods are such commodities.
Detailed explanation-3: -Interpretation of Income Elasticity of Demand When there is an increase in the real income of consumers, the quantity of normal goods demanded increase. In the real sense, whether consumers real income increase or not, consumers buy normal goods, hence, normal goods have positive impact on income elasticity of demand.
Detailed explanation-4: -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.