📚 Learning Guide
Inferior and Complementary Goods
hard

Which of the following statements best describes the relationship between inferior goods and consumer income when considering demand elasticity?

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Choose the Best Answer

A

As consumer income increases, the demand for inferior goods decreases, indicating negative income elasticity.

B

As consumer income decreases, the demand for inferior goods decreases, indicating positive income elasticity.

C

An increase in consumer income leads to an increase in demand for inferior goods, indicating zero elasticity.

D

The demand for inferior goods remains constant regardless of changes in consumer income, indicating unit elastic demand.

Understanding the Answer

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Answer

Inferior goods are products that people buy less of when their income increases. This means that as consumers have more money, they often choose to buy better quality or more expensive items instead of these goods. For example, if a person usually buys instant noodles because they are cheap, they might switch to fresh pasta when they get a raise. This relationship shows that the demand for inferior goods is elastic, meaning it changes significantly with changes in income. In contrast, complementary goods are items that are often used together, but their demand isn’t directly affected by changes in consumer income in the same way as inferior goods.

Detailed Explanation

When people earn more money, they buy less of inferior goods. Other options are incorrect because This option suggests that when income goes down, demand for inferior goods also goes down; This choice says that higher income increases demand for inferior goods.

Key Concepts

Inferior goods
Demand elasticity
Consumer income
Topic

Inferior and Complementary Goods

Difficulty

hard level question

Cognitive Level

understand

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