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If the income elasticity of demand is negative, the good in question is: a
If the income elasticity of demand is negative, the good in question is:
a. a complementary good.
b. an inferior good.
c. a normal good.
d. a substitute good.
Expert Solution
- The correct answer is b. an inferior good.
The Income Elasticity of Demand (YED) is calculated with the following equation.
Where,
- = percentage change of the quantity demanded
- = percentage change of income
The YED coefficient can be classified with the following criteria.
YED>1 - Luxury goods
0<YED<1- Normal goods
YED<0 - Inferior goods
Therefore, if the YED is negative, the good can be classified as inferior. This means that the demand will decrease when the income increases.
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