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Generally, when income of consumer increases, he goes in for superior goods, leading to a fall in demand for inferior goods. It means, income elasticity of demand is ________.
- a)Less than 1
- b)Unitary
- c)Zero
- d)Negative
Correct answer is option 'A'. Can you explain this answer?
Verified Answer
Generally, when income of consumer increases, he goes in for superior ...
In case of inferior goods, there will be negative income elasticity. (Ey< 0)
This question is part of UPSC exam. View all CA Foundation courses
Most Upvoted Answer
Generally, when income of consumer increases, he goes in for superior ...
Less than 1 is for necessity goods. For Superior good income elasticity of demand is more than 1 and answers "Negative" is follow all conditions of above question.
Community Answer
Generally, when income of consumer increases, he goes in for superior ...
Income Elasticity of Demand
Income elasticity of demand measures the responsiveness of the quantity demanded of a good to a change in consumer income. It helps us understand how changes in income affect the demand for different types of goods.
Effect of Income on Consumer Behavior
When a consumer's income increases, their purchasing power also increases. This often leads to changes in their consumption patterns. Consumers tend to spend more on certain types of goods when their income increases, while reducing their consumption of other goods.
Superior Goods vs Inferior Goods
- Superior goods, also known as luxury goods, are goods that consumers demand more of as their income increases. These goods are considered to have a positive income elasticity of demand.
- Inferior goods, on the other hand, are goods that consumers demand less of as their income increases. These goods are considered to have a negative income elasticity of demand.
Relationship between Income and Demand
When a consumer's income increases, they have the ability to purchase more of a good or service. However, their preferences may also change. As income increases, consumers may choose to spend their additional income on superior goods, which are often associated with higher quality or status. This leads to a decrease in the demand for inferior goods.
Income Elasticity of Demand
The income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income. It measures the sensitivity of demand to changes in income.
In the given scenario, as the consumer's income increases, their demand for inferior goods falls. This implies that the income elasticity of demand for inferior goods is less than 1. An income elasticity of demand less than 1 indicates that the quantity demanded of the good is not very responsive to changes in income.
Therefore, the correct answer is option 'A' - Less than 1.
Income elasticity of demand measures the responsiveness of the quantity demanded of a good to a change in consumer income. It helps us understand how changes in income affect the demand for different types of goods.
Effect of Income on Consumer Behavior
When a consumer's income increases, their purchasing power also increases. This often leads to changes in their consumption patterns. Consumers tend to spend more on certain types of goods when their income increases, while reducing their consumption of other goods.
Superior Goods vs Inferior Goods
- Superior goods, also known as luxury goods, are goods that consumers demand more of as their income increases. These goods are considered to have a positive income elasticity of demand.
- Inferior goods, on the other hand, are goods that consumers demand less of as their income increases. These goods are considered to have a negative income elasticity of demand.
Relationship between Income and Demand
When a consumer's income increases, they have the ability to purchase more of a good or service. However, their preferences may also change. As income increases, consumers may choose to spend their additional income on superior goods, which are often associated with higher quality or status. This leads to a decrease in the demand for inferior goods.
Income Elasticity of Demand
The income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income. It measures the sensitivity of demand to changes in income.
In the given scenario, as the consumer's income increases, their demand for inferior goods falls. This implies that the income elasticity of demand for inferior goods is less than 1. An income elasticity of demand less than 1 indicates that the quantity demanded of the good is not very responsive to changes in income.
Therefore, the correct answer is option 'A' - Less than 1.
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Generally, when income of consumer increases, he goes in for superior goods, leading to a fall in demand for inferior goods. It means, income elasticity of demand is ________.a)Less than 1b)Unitaryc)Zerod)NegativeCorrect answer is option 'A'. Can you explain this answer?
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