ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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It is an inferior good with close substitutes.
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It is an inferior good with weak complements.
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It is a normal good with close substitutes.
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It is a normal good with weak complements.
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Detailed explanation-1: -As we learned previously, inferior goods have an inverse relationship between income and demand, which results in a negative income elasticity of demand. On the other hand, normal goods have a positive relationship between income and demand which is reflected in a positive income elasticity of demand.
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: -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-4: -Income elasticity of demand for inferior goods is negative.
Detailed explanation-5: -If the income elasticity of demand is negative, then the good is inferior. This means when income increases, the demand for the good decreases.