If the income elasticity coefficient is negative, it means thatmultiple choice 2the good is normal so that if price falls, the quantity demanded of the good will rise.the good is inferior so that if price falls, the quantity demanded of the good will rise.the good is inferior so that if income falls, the quantity demanded of the good will rise.the good is inferior so that if income falls, the quantity demanded of the good will fall.
Question
If the income elasticity coefficient is negative, it means thatmultiple choice 2the good is normal so that if price falls, the quantity demanded of the good will rise.the good is inferior so that if price falls, the quantity demanded of the good will rise.the good is inferior so that if income falls, the quantity demanded of the good will rise.the good is inferior so that if income falls, the quantity demanded of the good will fall.
Solution
The correct answer is: the good is inferior so that if income falls, the quantity demanded of the good will rise.
Here's why:
Income elasticity of demand measures how the quantity demanded of a good responds to a change in income. It is calculated as the percentage change in quantity demanded divided by the percentage change in income.
A negative income elasticity coefficient indicates that the good is an inferior good. Inferior goods are those for which demand decreases as income increases, and vice versa.
So, if the income elasticity coefficient is negative and income falls, consumers will have less money to spend on normal goods and will instead buy more of the inferior good. Hence, the quantity demanded of the inferior good will rise.
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