ECONOMICS
ELASTICITY OF DEMAND
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
Normal Good
|
|
|
Inferior Good
|
|
|
Luxury Good
|
|
|
Necessity Goods
|
Detailed explanation-1: -Normal goods have a negative coefficient of price elasticity of demand (PED) and a positive coefficient of income elasticity of demand (YED).
Detailed explanation-2: -YED – definition The positive sign shows that the goods (holidays) are normal goods, and the value (5) is much greater than 1, which means that holidays are luxury goods. When the relationship is negative, the goods are ‘inferior’ goods.
Detailed explanation-3: -If the income elasticity of demand is 0.5 this means a 1% change in income leads to a 0.5% change in quantity demanded. If the value of the income elasticity of demand is greater than 1 this is known as income elastic demand.
Detailed explanation-4: -A-0.5-income elasticity means that demand is relatively inelastic. This happens in the case of a good that needs to be bought regardless of price.