Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Income elasticity affects a normal good and an inferior good in different manner , in the case of normal good income elasticity has positive affects

Income elasticity affects a normal good and an inferior good in different manner , in the case of normal good income elasticity has positive affects that mean raise in income also increases the demand for goods and on the other hand in the case of inferior good income elasticity has a negative affect that mean raise in income decreases the demand for the inferior good and Visa Versa .

Depending on the values of the income elasticity of demand, goods can be broadly categorized as inferior goods and normal goods.Normalgoods have a positive income elasticity of demand; as incomes rise, more goods are demanded at each price level.

Normal goods whose income elasticity of demand is between zero and one are typically referred to as necessity goods, which are products and services that consumers will buy regardless of changes in their income levels. Examples of necessity goods and services include tobacco products, haircuts, water, and electricity.

As income rises, the proportion of total consumer expenditures on necessity goods typically declines.Inferiorgoods have a negative income elasticity of demand; as consumers' income rises, they buy fewer inferior goods. A typical example of such type of product is margarine, which is much cheaper than butter.

How can you approach this discussion? What is the take?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Global Capitalism Its Fall And Rise In The Twentieth Century

Authors: Jeffry Frieden

1st Edition

039332981X, 9780393329810

More Books

Students also viewed these Economics questions

Question

What is a value date?

Answered: 1 week ago

Question

=+What is the brand's character or personality?

Answered: 1 week ago