Assume that a 4 percent increase in income results in a 6 percent decrease in the...
Assume that a 4 percent increase in income results in a 6 percent decrease in the quantity demanded of a good. The income elasticity of demand for the good is
a. negative and therefore the good is an inferior good.
b. negative and therefore the good is a normal good.
c. positive and therefore the good is an inferior good.
d. positive and therefore the good is a normal good.
Homework Answers
Option A
- Inferior goods are those goods whose demand is inversely related to income of the consumer.
- That is when the income of a consumer rises, its demand declines.
- This shows that the income elasticity of demand for such goods is negative.
- Example, consider a good X ,say a bus service has a negative income elasticity of demand as people will prefer purchasing their own private cars when their own incomes increase.
- This implies that the public bus service is an inferior good.
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PLEASE READ CAREFULLY & WRITING MUST BE CLEAR TO READ!!
THANKS!!
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