The income elasticity of tomatoes is 0.25,it means tomato are (a)infer...
Answer:
Introduction:
The income elasticity of demand is the ratio of percentage change in quantity demanded to the percentage change in income. It indicates how the quantity demanded changes in response to changes in consumer income.
Explanation:
The income elasticity of tomatoes is 0.25, which means that a 1% increase in income results in a 0.25% increase in the quantity demanded of tomatoes. Based on this value, we can determine whether tomatoes are inferior, luxury, or normal goods.
- Normal goods: If the income elasticity of demand is positive, but less than one, the good is considered a normal good. The value of 0.25 indicates that tomatoes are normal goods, as the quantity demanded increases with an increase in income, but not as much as income.
- Luxury goods: If the income elasticity of demand is greater than one, the good is considered a luxury good. This means that as income increases, the quantity demanded increases at a faster rate than income. However, tomatoes do not fall under this category.
- Inferior goods: If the income elasticity of demand is negative, the good is considered an inferior good. This means that as income increases, the quantity demanded decreases. However, since the income elasticity of tomatoes is positive, we can conclude that they are not inferior goods.
Conclusion:
In conclusion, based on the income elasticity of demand value of 0.25, it can be inferred that tomatoes are normal goods.
The income elasticity of tomatoes is 0.25,it means tomato are (a)infer...
Inferior goods
To make sure you are not studying endlessly, EduRev has designed CA Foundation study material, with Structured Courses, Videos, & Test Series. Plus get personalized analysis, doubt solving and improvement plans to achieve a great score in CA Foundation.