ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Demand for substitute goods and inferior goods will fall
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Demand for substitute goods will fall and inferior goods will rise
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Demand for substitute goods and inferior goods will rise
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None of the above
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Detailed explanation-1: -In the event of a recession, as incomes fall pretty much across the board, demand for inferior goods increases (and demand for normal goods decreases). Likewise, when the economy is stronger, the demand for inferior goods decreases (and demand for normal goods increases).
Detailed explanation-2: -Those goods you buy more of when your income goes down are called “inferior goods.” In eco-nomics, an inferior good is one for which the “income elasticity of demand”-how much you change your demand for the good in response to a change in your income-is negative.
Detailed explanation-3: -Answer and Explanation: Inferior goods experience increased demand when income falls. Therefore, this makes inferior goods to be affordable substitutes for expensive goods during an economic recession.
Detailed explanation-4: -When consumer income levels increase, the demand for normal goods rises, while the demand for inferior goods lowers. If prices are low, consumers may prefer normal goods, but when prices rise, they might opt instead for inferior goods.