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.
Income elasticity of demand measures the responsiveness of quantity demanded to changes in income. It helps classify goods based on their relationship with changes in consumer income.
When the income elasticity of demand for a good is negative, it indicates that as income increases, the quantity demanded for that good decreases. In other words, the good is considered an inferior good. Inferior goods are those for which demand decreases as consumer income rises, typically because consumers shift to higher-quality or more expensive alternatives when their income increases.
On the other hand, if the income elasticity of demand is positive, it suggests that as income increases, the quantity demanded for the good also increases. This indicates that the good is a normal good. Normal goods are those for which demand increases as consumer income rises.
Luxury goods refer to goods for which demand increases significantly as income rises, typically associated with higher-income consumers. Substitute goods are goods that can be used in place of each other, and the income elasticity of demand is not directly related to their classification.
Therefore, if the income elasticity of demand for a good is negative, it is considered an inferior good.
