ECONOMICS
MARKETS AND PRICES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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an inferior good
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a normal good
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a luxury good
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None of the above
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Detailed explanation-1: -Normal goods have a positive income elasticity of demand, where a change in demand and a change in income move in the same direction.
Detailed explanation-2: -Depending on the values of the income elasticity of demand, goods can be broadly categorized as inferior and normal goods. Normal goods have a positive income elasticity of demand; as incomes rise, more goods are demanded at each price level.
Detailed explanation-3: -The positive income elasticity of demand is when the demand for a product increases as consumer income increases. A good with a positive income elasticity of demand is called a “normal” good.
Detailed explanation-4: -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-5: -A normal good will have a positive income elasticity, since if the % change in income is positive, the % change in quantity will be positive and vice-versa. A inferior good will have a negative income elasticity, since if the % change in income is positive, the % change in quantity will be negative and vice-versa.