Question : If the income elasticity of demand for a good is less than 0, it means the good is:
Option 1: A normal good.
Option 2: An inferior good.
Option 3: A luxury good.
Option 4: A substitute good.
Correct Answer: An inferior good.
Solution : The correct answer is (b) An inferior good.
An inferior good is a type of good for which the demand decreases as consumer income increases. When the income elasticity of demand is negative, it indicates that the percentage change in quantity demanded is opposite in direction to the percentage change in income. In other words, as consumers' income increases, they tend to decrease their demand for the good, suggesting that it is an inferior good.
Examples of inferior goods include generic or store-brand products, low-quality goods, and lower-priced alternatives. These goods are often seen as lower quality or less desirable compared to other options available in the market. As consumers' income rises, they tend to shift their preferences towards higher-quality goods or more expensive alternatives, leading to a decrease in demand for the inferior goods.
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