ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Normal goods whose income elasticity of demand is between zero and one are typically referred to as necessity goods, which are products and services that consumers will buy regardless of changes in their income levels. Examples of necessity goods and services include tobacco products, haircuts, water, and electricity.

Detailed explanation-2: -When YED = 0, demand for the product does not change when incomes change. A value of YED between 0 and 1 indicates that demand only increases by a smaller proportion than the increase in income, which is income inelastic. With normal luxury goods, an increase in income causes an even bigger increase in demand. YED > 1.

Detailed explanation-3: -The income elasticity coefficient or YED for normal necessities is between 0 and 1. Normal necessities include basic needs such as milk, fuel, or medicines. Factors such as a change in price or change in consumers’ income do not affect the demand for necessary goods.

Detailed explanation-4: -What are inferior goods? If, following an increase in real income, less of the good is purchased, then the good is an inferior good. Inferior goods have a negative YED, i.e. YED < 0.

Detailed explanation-5: -The income elasticity can be zero. For example, if you spent a very little amount of money on a good, its demand does no increase or decrease with the change in income. An increase in income does not increase your demand for toothpaste.