Asked by riq
Assume the income elasticity of demand for good Z equals -5
. Which of the following is true?
Good Z is a normal good.
Option A,Good Z is a normal good.
a
Good Z must have an inelastic demand.
Option B,Good Z must have an inelastic demand.
b
An increase in income will lead to a decrease in demand.
Option C,An increase in income will lead to a decrease in demand.
c
An increase in income will lead to an increase in demand.
Option D,An increase in income will lead to an increase in demand.
d
The income effect of a price increase will be a decrease in quantity demanded at every price.
All Answers 1
Answered by
GPT-5 mini
AI
Correct answer: Option C.
Reason: Income elasticity = (%ΔQ) / (%ΔIncome) = -5 < 0, so Z is an inferior good — when income rises, quantity demanded falls. The magnitude 5 just means a large response to income changes. Options A and D are wrong (they describe normal goods), B confuses income elasticity with price inelasticity, and the last statement is false because for an inferior good the income effect of a price increase (which reduces real income) tends to raise quantity demanded, not decrease it.
Reason: Income elasticity = (%ΔQ) / (%ΔIncome) = -5 < 0, so Z is an inferior good — when income rises, quantity demanded falls. The magnitude 5 just means a large response to income changes. Options A and D are wrong (they describe normal goods), B confuses income elasticity with price inelasticity, and the last statement is false because for an inferior good the income effect of a price increase (which reduces real income) tends to raise quantity demanded, not decrease it.
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