Question : If the income elasticity of demand for a good is negative, 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 people have higher incomes, they tend to shift their consumption towards higher-quality or more expensive goods, and as a result, the demand for inferior goods decreases. Examples of inferior goods can include low-quality or generic products, low-cost substitutes, or products associated with lower socioeconomic groups.
The negative income elasticity of demand for an inferior good reflects the inverse relationship between income and demand. As income rises, consumers have more purchasing power and are likely to substitute the inferior good with higher-quality alternatives, leading to a decrease in demand for the inferior good.
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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