Question

6. When you find income elasticity of demand, you can determine whether the goods are normal or inferior based on whether your answer is a positive or negative number. Explain. Include definitions of inferior and normal goods in your explanation.

Answer 1

Explanation:

Normal goods are the whose demand decreases with increase in price whereas in economics inferior goods are those whose demand decreases with increase in people's income.

Normal goods have a positive income elasticity of demand; as incomes rise, more goods are demanded at each price level.Inferior goods have a negative income elasticity of demand; as consumers' income rises, they buy fewer inferior goods.