Question : If the income elasticity of demand for a good is less than 0, it means the good is:
Option 1: A normal good.
Option 2: An inferior good.
Option 3: A luxury good.
Option 4: A substitute good.
Correct Answer: An inferior good.
Solution : The correct answer is (b) an inferior good.
An inferior good is a type of good for which demand decreases as consumer income increases. When consumers experience an increase in income, they tend to allocate a smaller portion of their budget to inferior goods, leading to a decrease in the quantity demanded of those goods.
The income elasticity of demand measures the responsiveness of quantity demanded to changes in income. A negative income elasticity of demand indicates that as income increases, the quantity demanded of the good decreases. In the case of an inferior good, the decrease in quantity demanded is because consumers switch to higher-quality or more desirable goods as their income rises.
Question : If the income elasticity of demand for a good is less than 1, it means the good is:
Question : If the income elasticity of demand for a good is greater than 1, it means the good is:
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