ECONOMICS
ELASTICITY OF DEMAND
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
If a product is a luxury or necessity
|
|
|
If a product has a tax
|
|
|
If a product is an inferior good
|
|
|
A rise in the value of the £
|
Detailed explanation-1: -The four factors that affect price elasticity of demand are (1) availability of substitutes, (2) if the good is a luxury or a necessity, (3) the proportion of income spent on the good, and (4) how much time has elapsed since the time the price changed. If income elasticity is positive, the good is normal.
Detailed explanation-2: -Income elasticity of demand is the change in the quantity demanded of a commodity with respect to the percentage change in the income. The demand for inferior goods rises when the real income of consumers falls and vice versa. Hence, income elasticity of demand for inferior goods is negative.
Detailed explanation-3: -In economics, the demand for inferior goods decreases as income increases or the economy improves. When this happens, consumers will be more willing to spend on more costly substitutes. Some of the reasons behind this shift may include quality or a change to a consumer’s socio-economic status.
Detailed explanation-4: -Inferior goods are those goods, the demand for which falls as income of the consumer increases. Hence, there is a negative effect. Q. Income elasticity of demand for inferior goods is negative.