ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Demand for normal goods decreases when income increases and demand for inferior goods increases when income increases
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Demand for inferior goods decrease when income increases and demand for normal goods increase when income increases
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Demand for normal goods increases when income decreases and demand for inferior goods increases when income increases
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Demand for inferior goods decreases when income decreases and demand for normal goods increases when income increases
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Detailed explanation-1: -Normal goods are the goods whose demand goes up with the rise in consumer’s income. Inferior goods are the goods whose demand falls down with the rise in consumer’s income.
Detailed explanation-2: -Normal goods directly correlate with consumer income, which means that the demand for these goods increases with the buyer’s earnings. On the other hand, inferior goods have an inverse relationship with consumer income, meaning that their demand decreases when they earn a higher income.
Detailed explanation-3: -A normal good is one whose demand increases when people’s incomes start to increase, giving it a positive income elasticity of demand. Inferior goods are associated with a negative income elasticity, while normal goods are related to a positive income elasticity.
Detailed explanation-4: -The Bottom Line Demand for normal goods increase as income rises. The income elasticity of demand formula measures the change in demand to a change in income.
Detailed explanation-5: -In the case of normal goods, income and demand are directly related, meaning that an increase in income will cause demand to rise and a decrease in income causes demand to fall.