Question

Suppose that a good has an income elasticity of demand of -2. 0. This means that the good is

Answer 1

The good has an income elasticity of demand of -2. 0. This means that the good is inferior goods.

What are the characteristics of inferior goods?

An inferior good occurs when an increase in income causes a fall in demand.

An inferior good has a negative income elasticity of demand. (YED) Inferior goods are characterized by low quality – and are goods with better alternatives.

Suppose that good has an income elasticity of demand of -2. 0. This means that the good is inferior goods.

An inferior good is one whose demand drops when people's incomes rise. When incomes are low or the economy contracts, inferior goods become a more affordable substitute for more expensive goods.

Inferior goods are the opposite of normal goods, whose demand increases even when incomes increase.

Hence, the good has an income elasticity of demand of -2. 0. This means that the good is inferior goods.

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