Assume that a 2 percent increase in income results in a 4 percent decrease in th

Question

Assume that a 2 percent increase in income results in a 4 percent decrease in the quantity demanded of a good. The income elasticity of demand for the good is

Question 1 options:

positive and therefore the good is a normal good.

positive and therefore the good is an inferior good.

negative and therefore the good is an inferior good.

negative and therefore the good is a normal good.

positive and therefore the good is a normal good.

positive and therefore the good is an inferior good.

negative and therefore the good is an inferior good.

negative and therefore the good is a normal good.

Explanation / Answer

Answer

negative and therefore the good is an inferior good.

The income elasticity of demand for the good is

=% change in quantity demanded/%change in income

=-4/2

=-2

The income elasticity is negative so the good is inferior because the inferior good has negative relations with income.

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