ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Used clothes
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Shoes
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Hand phone
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Rice
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Detailed explanation-1: -Essentially, a negative income elasticity of demand is associated with inferior goods, implying that increasing earnings will cause a decrease in demand and may result in modifications to luxury items.
Detailed explanation-2: -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-3: -Thus, the correct option is C. Other given commodities (designer goods, tennis balls, and frozen yogurt) are more of normal goods-when income increases, their demand will increase.
Detailed explanation-4: -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-5: -Answer: The income elasticity of demand most likely to be negative for “B. Used clothing".