Recall the market for cosmetics whose IED<0. If the economy goes through a recession (when incomes...
Recall the market for cosmetics whose IED<0. If the economy goes through a recession (when incomes fall), what would happen to the demand curve for cosmetics?
Group of answer choices It would shift left It would shift right It would become a straight, vertical line It would become a straight, horizontal line
Homework Answers
Ans) Income elasticity of demand is the responsiveness of quantity demanded to change in income.
Income elasticity of demand for normal good is positive as when income increases, demand for normal good increases and vice versa.
Income elasticity of demand for inferior good is negative because as when income increases, quantity demanded decreases and vice versa.
During recession, income falls, as a result demand for normal good will decrease and demand for inferior good will increase. Therefore demand curve will shift to the right.
Option b. (Here cosmetics is inferior good as it has negative IED).
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